November 29, 2012

Bonuses to Hostess execs criticized by Mainers

A federal judge allows the bankrupt company to give its top 19 executives a total of $1.8 million.

A federal judge's decision Thursday to allow bankrupt Hostess Brands Inc. to give 19 of its executives bonuses totaling $1.8 million drew harsh criticism in Maine.

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A Hostess Twinkies sign is shown at the Hostess plant. A judge approved $1.8 million in bonuses for 19 Hostess executives, which has drawn sharp criticism in Maine. (AP Photo/Rick Bowmer, File)

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John Jordan, business agent for the bakery union's local in Biddeford, home to one of Hostess' now-closed bakeries, said any discussion of bonuses is "sickening."

"The workers aren't even getting what is owed to them, and they are talking about extra money?" he said. "I guess that's the American way now. Baseball, apple pie and bonuses for executives of failed companies."

In Thursday's proceeding in U.S. Bankruptcy Court in White Plains, N.Y., Hostess got approval to give its top executives bonuses totaling as much as $1.8 million for meeting certain budget goals during the liquidation.

The Associated Press reported that the company said the incentive pay is needed to retain the 19 corporate officers and "high-level managers" to close down the company, which could take about a year. The shutdown will eliminate more than 18,000 jobs.

Hostess was given interim approval for its shutdown last week, getting legal protection to fire 15,000 union workers immediately. The company said the terminations are necessary to free up workers to apply for unemployment benefits.

The AP said about 3,200 employees are being retained to help in the shutdown, including 237 employees at the corporate level.

U.S. Rep. Chellie Pingree, D-Maine, also expressed outrage Thursday about the bonuses.

"They should be ashamed to ask for bonuses for executives who just drove a company out of business," Pingree said Thursday in a prepared statement. "And the idea that they have to be paid extra just to stay on the job while 500 people in Maine and 18,000 people around the country don't even have a regular paycheck because of poor management practices is outrageous.

"It's another slap in the face to the men and women who worked so hard for that company and are now without a job," said Pingree.

The company's demise came after years of management turmoil and turnover. Workers say the company failed to invest in updating its products, which include Twinkies, CupCakes and Ding Dongs.

In January, Hostess filed for its second Chapter 11 bankruptcy in less than a decade, citing steep costs associated with its unionized work force.

Although the company reached a new contract agreement with its largest union, the Teamsters, the bakers union rejected the terms and went on strike Nov. 9. Hostess announced its plans to liquidate a week later, saying the strike had crippled its ability to maintain normal production.

Hostess employed 500 people in Maine, including 370 at its plant in Biddeford.

Paul Hodgson, chief research analyst for GMI Ratings in Portland and an expert in executive compensation, said that giving bonuses to executives, while infuriating to many, is quite common.

"When a company goes into bankruptcy, it frequently will say, 'We need to keep executives on through this process,'" he said. "Most would want to jump ship immediately, so there is logic in wanting to keep them."

Hodgson said bonuses are easier for the public to stomach when they are contingent on results, but that rarely happens.

The total of $1.8 million is relatively small for a business that size, Hodgson said.

"But they don't have a lot of cash," he said of Hostess. "That's why they are going out of business."

Jordan, the business agent for the bakery union's Local 334, said he doesn't understand the logic of retaining the same executives who steered the company into the ground.

"Why can't a third party do it?" he said.

It's still unclear what will happen to Hostess' factory in Biddeford. Some former employees are hopeful that it will be bought and reopened as a bakery.

"That plant in Biddeford is one of the more modern and efficient facilities in the company," said Pingree, who is married to S. Donald Sussman, majority share owner of The Portland Press Herald/Maine Sunday Telegram. "They have had an excellent work force and I hope we see some new management in there soon so they can get back to work."

 

Staff Writer Eric Russell can be contacted at 791-6344 or at:

erussell@mainetoday.com

Twitter:@PPHEric Russell

 

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