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September 23, 2009
Masters of Phoney Profit
Justin Katz
Gotta say that I'm inclined to suggest a rule of thumb dictating that executive bonuses are simply not permitted while their companies are in bankruptcy, mainly for the reason expressed by U.S. Bankruptcy Court Judge Arthur Votolato with reference to such a request from Twin River:
"I'm concerned with how the management team gets credit for growing this monster they can't pay for," Votolato said.
To which one of the company's lawyers responded as follows:
Hessler suggested the judge had to separate the slot parlor's burdensome loan package from the money it makes on gambling.
Why? At the very least, our bankruptcy system shouldn't be so structured as to create incentive to borrow and then turn to the courts to wipe out debt while the architects of the scheme profit.
5:44 PM
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"Hessler suggested the judge had to separate the slot parlor's burdensome loan package from the money it makes on gambling."
What a bogus argument.
The success of a corporation or a private operation must be judged on the sum total of income over expenses. The latter specifically includes any loans/debts taken on by the organization.
So how have the officers of a corporation earned bonuses if they authorized more borrowing than operational revenue can cover?
Posted by: Monique at September 23, 2009 10:18 PMImagine if that worked both ways? I mean, when the executives went to their banks and asked for the loan to expand, and then banker asked "So how are you going to pay the loan back?" Of course they'd answer, "With the money that we make from gambling."
Now imagine if the banker said, "No, we have to separate the gambling income from how you're going to pay us back. So, how are you going to pay us back."
Doesn't it sound even more looney when put that way?
Posted by: Patrick at September 24, 2009 7:44 AMWhile it is little spoken of, I think it is well understood that one of the advantages of Chapter 11 is that it permits executives to continue drawing a paycheck while seeking other employment.
With this in the background, why should anyone be surprised by "bonuses".
Ever since Trump freed bankruptcy from "shame" as another "business strategy", we should expect creative engineering.
Posted by: Warrington Faust at September 24, 2009 8:46 AMWhile certainly the CEO and other executives who exercise control over the entire operation should not be rewarded for driving their firm into bankruptcy, it is possible that at least some of the executives who were slated to receive bonuses were only responsible for one business segment, for example a vice president in charge of gambling operations or live entertainment. If that is in fact the case, we should consider whether a bankruptcy system that refuses to recognize high performing employees contributions to the firm - and compensate them accordingly - might not result in a flight of valuable human capital at a time the firm can least afford to bare it.
Posted by: Matt at September 24, 2009 3:56 PMYour honor, I would like you to separate a line between my 'good job' and my 'mortgage'. It's unfair to make me pay my 'mortgage' out of money earned fair and square from my 'good job'.
Posted by: mangeek at September 24, 2009 5:01 PM