Bankruptcy Bonuses: Another Way Execs Cheat Workers (and Taxpayers)

by Bruce Watson Jul 24th 2012 5:00AM
The Hawker Beechcraft plant in Wichita, Kansas. (AP)

Ever since 2008, when sordid tales of big bonuses at bailed-out Wall Street banks flooded the news media, the huge checks that top executives often write themselves have been reliable class warfare bait. Little wonder: That year, amid failing banks, mass foreclosures, skyrocketing unemployment and frenzied bailouts, New York financial companies paid their workers an estimated $18.4 billion in bonuses.

Since then, Wall Street has gotten a bit more careful about its bonus structure. Many companies reduced their bonuses, some capped the amount that employees could receive, and still others found creative ways to conceal their biggest paychecks. Even so, banker bonuses remain a tough sell to the general public, especially when it appears that they are coming at the expense of average workers -- and taxpayers.

The New Bonus Math

Recently, Hawker Beechcraft (HBC), a Wichita-based aircraft company, landed at the cutting edge of the bonus battle. Earlier this year, it entered bankruptcy and is now in the process of being sold to a Chinese firm, Superior Aviation Beijing Co. Ltd. In return for negotiating the sale of the company, HBC's nine top executives are hoping to get more than $5.3 million in bonuses -- 200% of their base salaries. Meanwhile, another 31 members of management will presumably split $1.9 million.

And what of HBC's workers? In preparation for the sale, the company is trying to shed its pension fund, which is currently $751 million in the hole. To put it mildly, the company's new Chinese owners don't want responsibility for its pensions; one plan is to dump responsibility for the fund onto taxpayers through the Pension Benefit Guaranty Corporation, an agency of the federal government.

The Outsourcing Business Plan

This isn't the first time that Hawker Beechcraft has hung its workers out to dry. The company was formed in March 2007, when Goldman Sachs and Onex Partners, a Canadian investment firm bought the division from Raytheon. Seven months later, HBC opened a huge new factory in Chihuahua, Mexico.

Between October 2008 and mid-August 2009, the company laid off 2,800 employees -- 25% of its workforce. They got rid of another 300 in late August 2009, 240 in September 2009, 350 in October 2010, and 906 in 2012.

Even apart from the costs of providing for the company's laid-off workers, much of the bill for HBC's downfall has landed on taxpayers. In 2010, the company struck a deal with the state of Kansas, promising to keep 4,000 jobs in Wichita until 2020, in exchange for which it received $45 million in tax benefits.

Currently, the company has 4,100 workers in Wichita, but it's unclear if those jobs will survive the company's sale to China. According to the International Association of Machinists and Aerospace Workers, a union that represents 3,500 HBC workers, "there is no reason to believe that Superior, an entity owned and financed by the Chinese government and the Beijing municipal development corporations, would preserve jobs in the United States rather than eventually transporting the work to China."

Emptying the Coffers

For that matter, Hawker Beechcraft's slow-motion march to bankruptcy seems to have gone hand-in-hand with the deflation of its pension fund. Recently, The Atlantic's James Fallows quoted a former employee of the company who claimed that "The pension plan was fully funded at the time of the sale in 2007 and was 98% in 2009."

So, to recap: In 2007, a pair of investment funds bought HBC. They proceeded to fire over 4,000 workers, looted the company's pensions, and are now hoping to leave U.S. taxpayers holding the bag on their responsibilities while top execs sell the company to China and pocket $7.2 million in bonuses in the bargain.

As horrifying as the HBC story is, it's not uncommon. Recently, Kodak, MF Global, Lear Corp, Lee Enterprises, and dozens of other bankrupt companies have asked for permission to give their execs huge bonuses -- often while carrying billions in government bailout funds.

In context, it's not hard to see why many critics are arguing that Wall Street is playing by a skewed set of rules, and the middle class is paying the price.

Concerns Over Chinese Company Buying Hawker Jets



Bruce Watson is a senior features writer for DailyFinance. You can reach him by e-mail at bruce.watson@teamaol.com, or follow him on Twitter at @bruce1971.

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118 Comments

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chris1011

Mith Robbme:

"I took thousands of good Middle Class jobs and turned them into $8 and hour no benefit ones at Sports Authority and Staples. My Economics Platform has as it's centerpiece the creation of permanent Tax Free zones in Communist China to maximize the return on my investment.

I want to destroy the EPA and the Department of Education as environmental rules slow my profits and a College Education should be the sole province of Rich Kids like me instead of being accessible to the middle class through loans and grants. What do you mean you don't have $160,000 to send your kid to college? I make that in 3 days.

Vote for me Suckas."

July 25 2012 at 3:26 PM Report abuse +2 rate up rate down Reply
1 reply to chris1011's comment
chris1011

Republicans 2012: Keeping millions of men, women and Veterans out of work to put one man out of a job.

July 26 2012 at 1:44 PM Report abuse rate up rate down Reply
steveandsusie

American owned companies got a hold put on exporting natural gas around the globe until we can do a study on how this will effect our country. But, on the other hand American companies can sell to foreign Countries with no hold or study period.... wtf. The fix on all these Bankruptcy deals should be simple, no bonuses or compensation, company needs to be split up and sold with all proceeds going towards the pension funds or promised benefits. Should be no reward or golden parchutes for anyone that runs a company in the ground. Furthermore U.S. Bankruptcy code should state that all assets or proceeds remain in the U.S. and can only be purchased by U.S. companies (.) no foreign bidders or purchasers. That would fix some of this bs.

July 25 2012 at 1:05 PM Report abuse rate up rate down Reply
John

To me, what is so disgusting is that corruption is so well established that no one needs to bother hiding it anymore. You can vote republican or democrat; which ever party you prefer to have screw you. And there is nothing you can do about it.

Remember Occupy Wall Street? it quietly vanished, didn't it?

July 25 2012 at 10:44 AM Report abuse rate up rate down Reply
lndjet

how is our gov't for the people by the people allowing this to go on? Our supposed elected officials are not working for us the are working for the corporations, when are we going to wake up?

July 25 2012 at 10:15 AM Report abuse +2 rate up rate down Reply
PBanks

If the company's in Bankruptcy, if the company is lucky, they can sell it to someone else. If they don't want to restructure the company. How did you go from bonuses for execs, to outsourcing? If the company was purchased by China, how can that be outsourcing, if they purchase the company and want to move the product to China? Has far the taxpayers goes, if they took money as a loan, they still have to pay back the Federal Reserve. You know as I do, they had to put something up for the loan and bailout.

July 25 2012 at 9:55 AM Report abuse -4 rate up rate down Reply
rnrinnie1

CEOS ARE SOCIOPATHS.

July 25 2012 at 9:32 AM Report abuse +3 rate up rate down Reply
imavege

I can't understand how these banks and brokers can have the gall to give themselves our money. When they lost our money in 2008 & 2009 they took bonuses. They should not have taken a bonus till we were made whole from the mess they created. Let them earn the money not steal the money.

July 25 2012 at 9:12 AM Report abuse +2 rate up rate down Reply
royalemary

deregulation by the government that was set up by 30 years of GOP rule has cause the mess the country is in today.All the money goes to the top.Time for the 99% to take over the country back.Time for a revolution,time for the unamerican,greedy republicans to be sent out of the country tarred and feathered.

July 25 2012 at 8:56 AM Report abuse +4 rate up rate down Reply
Keith

Let's place all the focus on "corporate greed" while unions "collective bargain" workers to the unemployment line after bakrupting companies. Equally hard to blame the execs for those contracts when our own Federal Government pushes the same type of contractual BS itself! What do you think those "guaranteed loans" to solar manufacturers the Administration KNEW was goinbg to fail actually went towards? Did the employees see a dime? Let's see some "transparency" on what that money was used (laundered) for.......

July 25 2012 at 8:19 AM Report abuse -7 rate up rate down Reply
1 reply to Keith's comment
lndjet

company's don't give unions anymore than they have to, its not like unions have that kind of power any more, If the pension plan was solvent and the ceo's pilfered it that would not suprise me, wall street players just said they are corupt in a NY Times ed.

July 25 2012 at 10:18 AM Report abuse +3 rate up rate down Reply
RW1951

The lack of american job creation can all be laid in the lap of Obama and his anit-business rhetoric and socialist policies. He is truly the man behind the curtian and liberals like Watson coninue to misrepresent the facts and distract attention from the damage that the Obama adminisration is doing to private businesses in this country as he pursues his expansion of the federal government.. The proof is in Obma's budget that plan's for more trillion dollar deficits in the decade to come. This is his plan to destroy our economy yet the Obama state run media will not cover it.

July 25 2012 at 8:18 AM Report abuse -4 rate up rate down Reply
1 reply to RW1951's comment
rnrinnie1

PUT THE BLAME WHERE IT BELONGS ON THE REPUKLICIANS AND THIER 1% FRIENDS THEY BOUGHT THE REPUKLICIAN PARTY AND THEY VOTED TO GET RID OF THE MIDDLE CLASS. THIS HAS BEEN GOING ON FOR YEARS SOON THERE WILL BE ONLY THE RICH AND THE POOR..

July 25 2012 at 9:37 AM Report abuse +4 rate up rate down Reply