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The looting of Hostess brands by its top executives is an object lesson in how CEO pay harms the 99 percent and kills the U.S. economy.

Dow Jones had the scoop yesterday: The troubled Twinkie maker's executives gave themselves big raises before seeking bankruptcy protection. Reports the news service,

Unsecured creditors suspect that Hostess Brands Inc. may have "manipulated" its executives' pay--sending its former chief executive's salary, in particular, skyrocketing- in the months leading up to its Chapter 11 filing, in an effort to dodge the Bankruptcy Code's compensation requirements, according to a redacted court filing reviewed by Dow Jones.

The official committee representing Hostess's unsecured creditors wants to launch a formal investigation in the bankruptcy case, hoping to dig deeper into the bakery company's senior executive compensation. The information the group has already gathered suggests "the possibility" that the company converted a chunk of its top executives' pay from performance-based bonuses to guaranteed salary, "at least in part to sidestep" rules designed to ensure that companies in bankruptcy aren't enticing their employees to stay on board with the promise of cash.

The Teamsters are understandably furious. Hostess' top managers demanded 7,500 Teamster employees accept drastic wage and benefit cuts after they raised their own pay by as much as 300 percent.

As Teamsters General Secretary-Treasurer Ken Hall said,

The Dow Jones article suggests that management broke the law, looted the company and then told workers to suck it up and sacrifice.

If this is true, Hostess executives have violated their agreement with the Teamsters that all parties, including management, would share equally in concessions that would help keep this company alive.

It would be outrageous for the board of directors, which included secured lenders, to approve executive salary increases of up to 300 percent for a company that has filed for bankruptcy twice in four years.

Hostess management would like you to believe the company is failing because union workers make too much money and enjoy benefits that are too rich. In another era it would be hard to believe that executives driving a company into bankruptcy would make such a brazen claim. Especially since former CEO Brian Driscoll's salaray rose from $750,000 to $2.55 million in the run-up to bankruptcy -- and other executives' pay rose by as much as 80 percent.

But this is the age of corporate greed. It is now the norm rather than the exception for CEOs to put their own greed ahead of the interests of the company they've been entrusted to run.

In a recent blog post, TeamsterNation wrote,

CEOs are looting their corporations at the expense of innovation, trainng and employment, writes William Lazonick, the director of the UMass Center for Industrial Competitiveness.

In other words, they're destroying the US economy.

It isn't their base salary that's an issue here, but their stock options. For example, Bank of America's CEO Brian Moynihan's salary was "only" $950,000 last year, but he got stock options worth $6.1 million. JPMorgan Chase's Jamie Dimon did much better, earning $1.5 million in base salary with stock options that could raise his pay package to $23 million.

So CEOs have an incentive to inflate the price of their company's stock. They do it by buying back the company's own shares (called a stock buyback), which raises the share price. And as Lazonick points out, the practice of stock buybacks has gotten out of control:

In 1981, 292 major corporations spent less than 3 percent of their combined net income on buybacks.  ... From 2003 to 2007, buybacks really took off, and by 2007 the very same 292 corporations now spent over 82 percent of their net income repurchasing their own stock.
Here's why that's bad:
...these executives will tend to ignore investments in innovation and training. Some companies actually fund their buybacks by laying off workers, offshoring jobs to low-wage countries, and taking on debt. The top executives’ weapon of value extraction becomes a weapon of value destruction.
Lazonick argues that the 1% are destroying their companies and destroying the economy.
RuralRoute, a retired Hostess employee and Teamster, wrote a diary a few months back that exposed just how Hostess's well-compensated management destroyed the venerable snack maker:
Bankruptcy number one was filed in the fall of 2004 for no good reason. Interstate had assets galore and was current on it's liabilities- I pulled up a bunch of their property tax records then and found that they were not only current, but in fact had paid property taxes six months and more early. The nearly five year long bankruptcy produced little improvements in efficiency, only wage and benefit concessions. And despite having just expanded the corporate offices in Kansas City, on emerging from bankruptcy number one the executives changed the company's name to Hostess Brands and leased some pricey office space in more fashionable Houston.

Hostess has been coercing further concessions around a year now, and the union's membership have rightly rebuked them. Several months ago Hostess quit making contractually and legally obligated payments to the pension plans completely. Having failed to intimidate their union workers, Hostess has filed for bankruptcy, again. Our pensions are threatened, while the company's retired executives relax in the wealthier suburbs of Kansas City and other environments... You can look up their swank addresses and maxed out contributions to the republicans at opensecrets.org.

One bankruptcy is... Enough!

This retired Teamster Hostess worker and her brothers and sisters have had enough of "convenience" bankruptcies. It's time for the bankruptcy courts to say "No" and tell Hostess and similar deadbeat corporations to end the shakedown of their workers and pay up, even if it requires a "clawback" of those millions in unearned executive bonuses. Greedy CEO's will fleece us again and again... Until we stop them!...

Update- Just started reading through the bankruptcy filings... Juicy! For example, despite having hordes of empty bakeries and other buildings they've closed, Hostess is spending over $100,000 a month just to warehouse incoming ingredients. And in little Waterloo, Iowa their operation looks to be spread out over five locations- a bakery, thrift stores, and a depot and a warehouse because the bakery isn't big enough now that they've closed the Davenport, Rochester, Sioux City, Omaha, and Minneapolis bakeries. Meanwhile, the closed bakery in Davenport sits largely empty while Hostess is renting depot space just a few miles away. And Hostess is blaming the workers for their problems?

The company's unsecured creditors' committee, which includes the Teamsters, is asking the judge to order a formal investigation into management's potential violation of bankruptcy law. You see, you're not supposed to be looting your company before you stiff your creditors and your workers.

RuralRoute is absolutely right. Enough is enough.
 

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