According to a report by the Wall Street Journal, Hostess’ CEO, Gregory Rayburn, essentially admitted that his company stole employee pension money and put it toward CEO and senior executive pay (aka “operations”). While this isn't technically illegal, it's another sleazy theft by Hostess executives - who've paid themselves handsomely while running their company into the ground. Just last month, a judge agreed to let Hostess executives suck another $1.8 million out of the bankrupt company to pay bonuses to CEOs.
If there's no way to recover the money for the Hostess pension plans for workers, then we the taxpayers - through the Pension Benefit Guaranty Corp. - will have to foot the bill to make sure workers get the retirement money they paid in.
Hostess shows us clearly what Bain-style predatory capitalism is all about
: big bucks for the very few rich executives, layoffs and poverty for the workers and their communities.
And don’t mourn the loss of Hostess brands – they’ll be back, as the company is currently negotiating with over 100 potential buyers right now to bring Twinkies, Wonder Bread, and Ding Dongs back into the marketplace.
The Hostess story has nothing to do with unions, and everything to do with the Enron-ization and Bain-ization of the American economy.
In classic Enron style, back in 2005 Hostess sent out a letter saying they’d just had a very, very profitable quarter. Their stock jumped up. The CEO, Charles Sullivan, and many of the senior executives sold chunks of their stock. The CEO and senior executives were making out big, and the workers were making a decent living.
At that time, one of the hostess workers – Mike Hummel, blogging as bluebarnstormer over at Daily Kos – noted that he was making $48,000 a year, a bit over the US median household income, and had insurance and a pension.
Then, a few weeks later in 2005, came the letter saying that, oops, all of that profit had really been just an accounting error – the company was actually in trouble. Although the CEO and the top guys had all made a nice killing selling the stock when it was high, and paying a maximum income tax on it of 15 percent because they used the Capital Gains loophole that Mitt Romney used to become a multimillionaire, they now wanted the workers to take a big pay cut.
Hummel notes that the “oops” letter became the justification for asking the workers to take a pay cut, which they agreed to, and his pay dropped from $48,000 a year in 2005 to $38,000 a year last year. But every year, $3 an hour of his compensation showed up in the worker’s pension fund instead of his paycheck. Year after year. With 18,000-plus workers, it was millions and millions of dollars. Dollars that the workers had paid in, at the rate of $3 per hour.
Then came the Bain-style takedown. In order to strip the company down to its individual brands and sell them off, piece by piece, the company needed to bust the union. The union said, “No,” so the company went to bankruptcy court – a method Bain and other vulture capitalists often use to kill off unions.
In the meantime, the CEO and senior executives were paying themselves handsome salaries and big bonuses. And where was that money coming from?
On August 12 of 2011, the employees got a letter that said that the company was going to “temporarily suspend payments” to its pension funds. That would be the $3 per hour that this worker had negotiated as part of his compensation – instead of paying it to him by putting it into his pension fund now, the company said they were going to put it in later.
As the letter said, “I want to be clear that this temporary suspension of payments to the pension fund will not affect your pension benefits.”
Workers believed management, and kept on working.
But, it turned out, as we learned from that interview in today’s Wall Street Journal, that the senior management wasn’t just “borrowing” the pension funds – they were using them to fund ongoing operations. Including big paychecks to the fatcats.
Hostess CEO Gregory Rayburn wanted to make it clear that he wasn’t around when that particular thing happened. "Whatever the circumstances were, whatever those decisions were, I wasn't there," Rayburn told the Wall Street Journal. After all, Rayburn isn’t a baker – he’s a bankster. He’s the owner of Kobi Partners, a company that tells corporations how to “restructure.” Think Mitt Romney. And he’s going to make out very well on all this – the bankruptcy court just okayed $1.8 million in Christmas bonuses for the new fatcats at Hostess.
Ironically, if you borrow money to pay for your education, you can’t get rid of that debt through bankruptcy – one of the “reforms” of the bankruptcy law during the Bush era. But if you’re a CEO or a buyout bankster and you borrow money from your employees’ trust fund to be able to cover your own paycheck and million-dollar bonuses, and then take your company into bankruptcy, neither you nor the company have to pay those employees back even a single penny. Part of their pension is picked up by the taxpayers, and the rest is just lost.
There used to be a time in America when businesspeople had at least a modicum of ethics. Mostly it was because the majority of businesses were small- or medium-sized and locally owned, so the owners and managers had to look the employees in the eye. Or the unions were strong enough to keep the CEOs honest.
Reagan put an end to all that when he stopped enforcing the Sherman Anti-Trust Act, wiping out most of America’s small and medium-sized businesses, and when he kicked off the modern war on unions by firing the PATCO union strikers. You can see the result most clearly at any shopping mall or any downtown in America. What used to be locally owned business are now big chains, from food to jewelry to clothing.
It used to be that CEOs shared the pain. Lee Iacocca famously took a dollar a year as pay when he was working to turn around Chrysler. Steve Jobs did the same when Apple was in trouble. Pretty much everybody who’s ever started a small business knows what it’s like to make payroll for workers while taking little to nothing themselves during the early years of the company.
But in today’s post-Reagan, Bain-model American capitalism, there’s never any risk for the CEO class. Instead, all the risk is borne by the workers.
Karl Marx famously wrote that capitalism contains within itself the seeds of its own destruction. If true, the young, green shoots of that destruction may well be the corporate and billionaire excesses, ranging from the Hostess debacle to the billionaire oligarch Koch Brothers funding anti-union efforts by Rick Snyder and Republicans in Michigan.