Today in New York a judge for the Federal Bankruptcy Court all-but-ordered mediation between Hostess Brands and the Bakery, Confectionary, Tobacco Workers and Grain Millers Union (BCTGM) in an effort to avoid the demise of the company and one of it quintessential American snack brands, the Twinkie.
In January, the company filed for Chapter 11 bankruptcy protection for a second time, nearly three years after emerging from an earlier stint. The company said it could not meet its debt obligations during the first round of bankruptcy, but BCTGM and the Teamsters were furious that the company continued to pay executives exorbitant compensation while demanding major concessions from them. The company then offered a contract to workers of BCTGM with an eight percent pay cut for bakers and a 32 percent reduction of benefits, while its CEO was given a 300 percent raise above his basic compensation.
In this new round of contract negotiations financial disclosures revealed the company gave its top nine executives 60 to 100 percent raises, even though the company stopped paying its pension obligations to workers. The Teamsters agreed to more steep concessions but the workers of BCTGM refused, citing the egregious abuse of company executives as key factor of its fiduciary problems. When the union refused to accept an additional $100 million in cost concessions, the company’s management announced it was ending operations and liquidating its assets.
Today’s announcement by Judge Robert Drain effectively puts those plans on hold as mediation takes place between management and BCTGM. Although the union refused steeper cuts, the Teamsters agreed to more cuts in their last round of contract negotiations, adding pressure to all parties to come to an agreement and avoid the dissolution of the company.
Note: The average Teamsters driver makes $20 an hour, and the average baker makes $16, while the compensation of the company’s top executives ranges in the tens of millions. Over 18,000 middle-class workers are on the verge of destitution, while company executives remain insulated from financial hardship.
There is very little oversight of executive compensation in this country, but there is a growing awareness that insolvent companies regularly pay executives exorbitant and unjustified compensation packages that are unlinked from their financial performance. The question is whether Congress has the political will to regulate this form of economic transaction that increases wealth inequality and hampers long-term economic performance. This is doubtful as Congress is increasingly the coordinating committee for an unregulated and predatory form of capitalism that simultaneously encourages wealth maximization and wealth inequality.