Yesterday my twitter feed lit up with the information that Solyndra executives had collected sizeable bonuses as the company teetered on the edge of bankruptcy. Conservatives were predictably making hay of the episode, and I guess I can't blame them; it's exactly the sort of thing that ginned up outrage on the left when AIG employees took bonuses from the bankrupt firm. While the Solyndra sums were smaller, they were not small:
Senior executives at Solyndra collected hefty bonuses -- ranging from $37,000 to $60,000 apiece -- as the Fremont company bled cash and careened toward bankruptcy this summer.
Bankruptcy documents filed in Delaware earlier this week reveal that more than a dozen senior executives at the defunct solar manufacturing company were awarded sizable quarterly bonuses April 15 and again July 8. Solyndra ceased operations in late August and filed for bankruptcy Sept. 6. About 1,100 employees were laid off without severance pay.
The bonuses, awarded to more than a dozen executives, came on top of what were already highly competitive salaries. Karen Alter, Solyndra's vice president of marketing, had an annual base salary of $275,000; she was awarded a $55,000 bonus in April and again in July. Ben Bierman, Solyndra's executive vice president of operations and engineering, had an annual base salary of $300,000; he was awarded $60,000 in April and again in July. Will Stover, the company's chief financial officer, was also awarded a $60,000 bonus in April and again in July.
In the context of a company that is bleeding taxpayer-provided cash, who could possibly defend the payment of these bonuses?
I'm so glad you asked.
According to a former employee quoted in the article, these were retention bonuses. This is not actually all that uncommon. Firms that are in trouble tend to lose employees, who do not want to be caught short without a job when the mortgage is due. Unfortunately, the employees they lose tend to be the ones with extremely valuable skills that other employers want to hire.
This problem is exacerbated in economic downturns, because it can take a long time to find a new job--if your firm seems to be struggling, better start now!
Obviously, if experienced and talented people who know your operation well begin fleeing, this will worsen your company's chances of survival. So it may well make sense to offer them retention bonuses to ensure their continued presence. This was the logic between Key Employee Retention Plans, which allowed firms reorganizing in bankruptcy to pay valuable executives to stay on.
Unfortunately, there is a little fly in the ointment. Because such plans tend to target executives with specific and hard-to-replace firm knowledge, they are visually indistinguishable, to an outsider, from slush funds which allow executives to strip the last few drops of value from a company that they have already practically milked dry.
Indeed, sometimes that's what these plans are used for. And sometimes, I'm sure, it's a little from Column A, a little from Column B--valuable executives paying each other richer bonuses than are strictly necessary to keep them sticking around.
The problem is, there's really no way to tell. Who knows which executives are pulling their weight, and how easily they could get a job elsewhere? Mostly, the other senior executives in your KERP plan.
That's why Congress sharply restricted such programs in the 2005 bankruptcy reform (a provision that virtually no one outside of the trade press wrote about when discussing the "draconian" new law.) As far as I can tell, it hasn't done much good, but also hasn't done much harm; companies just shifted to "incentive plans" and other means to retain the executives they wanted.
So which was it with Solyndra?
I have no idea. You have no idea. In hindsight, obviously, they should have fired everyone and saved the taxpayer some extra money. And almost $500K annualized for a marketing VP sure does sound high. But this was probably less clear to the CEO at the time. And even if you think they should have known enough to shut down the firm, once they'd decided to continue operating, it may have been perfectly appropriate to continue paying those bonuses.
So I'm not exactly defending them--further reporting might well reveal that bonuses and salaries were wildly out of line. But it's not obviously evidence of malfeasance.
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is a columnist at Bloomberg View
and a former senior editor at The Atlantic.
Her new book is The Up Side of Down