"very few businesses are the product of a small subset of its people"
Hate to break it to you but that is EXACTLY what is going on here. Some people have EXPONENTIALLY more impact on saving a business than everyone else in the building. Real world examples:
- Two sales people who knew every high profit customer in our local market, which was the core of our turnaround plan
- My product engineer, with "the specs in her head". We could have never rebooted the business without her.
- The last manufacturing engineer standing, who we needed in the event we could secure a new facility for operations.
- My boss, the master deal maker who knew every major retail chain on our side of the country. Our secret to rebuilding the critical mass required for survival.
- One commercial manager (there were two of us), who was tasked with re-balancing the entire business on the fly to deal with massive swings in costs and competitor activity. Our pre-fire business model was completely shot and the banks cut us off, so we needed to reorganize around the new reality and find a way to generate positive cash flow to survive.
Without those five people / groups, the game was over - there would be no recovery plan, no road back to sustainable operations. Everyone else is irrelevant, potential cost savings when we needed them. You are playing a very high stakes short term game for the humble prize of survival...
Finance's job was basically to keep the tie fighters off our back, keep the lawyers, bankers, and insurance people away from folks doing the actual work. Customer Service was there to gently wind down relationships with non-critical accounts, in the vague hopes we could come back someday. We were able to give a few people some runway on those teams, moving anyone who wasn't able to hit the street immediately onto those lists to give them a little more time.
And your key people are irreplaceable in that world. There's no way someone of equivalent expertise is walking into that mess for what you're able to pay them.
At an individual level? We had to invoke our worst endgame due to other issues (deal fell apart); four of the critical five are no longer with the company. Each of them landed with a promotion and a fairly substantial raise elsewhere, often with instructions to "go take their business back". (at that point, it was open season for those accounts; our prior employer was unable to service them) The typical job search for that level of talent is hours / days rather than weeks or months (there is a very specific set of people who will hire them immediately if given the chance) .
Any visions of nobility needs to balanced against your obligations to support your spouse and children. You're going to sacrifice your kids future for some random people they never met? Your spouse is cool with that? Get real. (Mine knew what was going to happen; I had "the talk" with her beforehand. We knew my job was going to be eliminated and I couldn't break ranks without screwing my people. But we've both done turnaround work before, so we had a plan to handle it. She's one in a million.)
So that's the shit-show you're trying to hold together.
Heck, I had a financial model sitting on my laptop to go buy one of my dying brands from the company, once it was very apparent that they weren't able to protect it. At that point, it was basically sitting by the side of the road waiting for someone to claim it...
This is the Pareto Principle at work. 20% of the people involved in an enterprise produce 80% of the value. It’s not that you don’t need the other 80% of the people, it’s that it doesn’t matter who they are.
If you remove the people in the high productivity group and replace them with people from the low productivity type then the organisation loses (roughly) 80% of its productivity. Replace people in the low productivity group and nothing happens.
Yes I agree it’s galling to see a few people compensated so highly in these situations, but as has been pointed out a) they individually most likely had little or nothing to do with bringing the problems about. b) What else are you going to do? The alternative is let the most critically essential personnel go and watch the whole organisation seize up for good.
How can you? One is taking about 80% of the work and the other is talking about half the work. You would need a distribution of the work impact across the employee population first.
The Pareto rule (at least my interpretation, due to its similarity with a power distribution) is recursive: 80% completeness from 20% work also implies 64% completeness from 4% work which in turn gives 51.2% completeness from 0.8% work (half of success is just showing up).
Accepting 51.2% as an approximation to half, the problem becomes 0.008 x = sqrt(x) which gives x = 125^2 = 15,625
I think there’s no avoiding paying people what is necessary to retain them. The alternative would be worse for the company and its other employees if essential talent was lost, or would be coercive and intrusive of the freedoms of these people if they were somehow compelled to continue working against their will and personal best interests.
I mean yeah but at this point you are basically admitting that keeping the company alive is more important to you than treating your employees equitably. Entirely possible for others to disagree with that stance, though your position does make sense if you take it.
Eh, you're not getting just how deep in the shit we were.
Sometimes you can't give everyone a pony.
There simply wasn't any money. That's the essence of running in financial distress. No banks, no loans, insurance support payments got swiped by other people we owed money to... You're running on the cash in the till.
We started with 500 jobs, most of which were union gigs with benefits. About 50 were still with us a week later, when this brutal end game went into full effect.
The cost of failure for this nasty little endgame for the 50 survivors, the quest for a sustainable business? We were an older union workforce, operating in an area with young non-union shops with sketchy labor policies. Our local employees were getting offers for $12 / hour with no benefits. Or a 40%+ drop in compensation for office staff due to age discrimination.
That's the difference between retiring for a nice middle class lifestyle and eating cat food for your golden years. Fifty lives fucked up, for loyal company soldiers.
So yeah, I wanted to keep the company alive to save jobs.
I'm a high end mercenary; I had an offer within a week of formally rolling off the program and plenty of consulting work to tide me over. My only prize here was moral satisfaction.
I think part of the question is: why try so hard to save the company at all? If 90% of the people working there ends up out on the street anyway, what's so special about the company itself that warrants showering money on the remaining 10% to try to keep it afloat? Why not let it fail, and those 50 people -- if they really are so high-performing -- will quickly find jobs with other firms. Some of them might even opt to start a new business instead of finding a new gig, taking with them knowledge and potential customers.
Instead of using the last of the money to keep the 10% around on a hail-mary, spread that money around to 100% of the company so their crash landing is a little softer.
- You're trying to retain 5, not the 50.. the other 45 are objectively not-critical to the enterprise (in the sense we could eliminate or replace those roles).
- A large fraction of the 45 are basically screwed in the job market; most of them were older, had decades of very specific experience, or had worked their way up in an organization that valued effort/loyalty over credentials. Milking another decade of work in their current role has life changing consequences for these workers and their families. Many of them were primary breadwinners in a bad area, so their job was the last line of defense between a respectable lower-middle class existence and the trailer park for them and their kids.
- Current reality was not reflective of long run potential. If we could stabilize the business, not only would the 50 jobs in question be preserved but there was an opportunity to rebuild and hire back. (feel good moment: this actually occurred. The team was able to restart key areas of the facility and we rehired some manufacturing people)
Young, highly educated people have no concept of the degree of privilege they enjoy in the labor markets. That degree opens doors and you don't get tossed out the instant some hiring manager sees a little grey hair. You don't have 30 years of experience which immediately becomes the leading reason NOT to hire you for a job because someone thinks you're incapable of learning anything new.
I'm not suggesting you can, I'm suggesting it's bad to give some people the boot and others a pony in the hope of saving an abstraction. The company doesn't exist outside of the people whose livelihoods it sustains.
And in a financially constrained endgame, you have to make choices about who to keep and cut.
Cutting that senior sales executive will cost 20 other jobs due to lost business and downstream implications.
Cutting the factory worker costs zero other jobs.
The harsh reality is not everyone matters equally.
[and to be clear, I'm not talking about bullshit deals just because someone was "loyal" to the CEO. This is real talk, people who actually can deliver a path to group survival]
All I'm saying is that it's bad if you cut those people and use it to give your execs a golden parachute instead of more runway for the people left over.
In that event, most of the people in question will accept an offer from a competitor with greater assurances of financial security and return to loot and pillage what's left of the business on behalf of their new sponsors.
If you're lucky, they merely poach the stuff you cannot defend anymore. In most situations, they come after the crown jewels of the business, accounts which create the lions share of the revenue and profits which funds the business.
And then you're screwed. Shut it down, pink slips for everyone...
I don’t understand what you are proposing as an alternative. If the company dies who is going to take care of the employees? Lay off everyone because it would be wrong to only save some? If everyone makes that noble choice all we get to show for it is a depression.
If you can't keep everyone on in the first place it's pretty ugly to give the people at the top bonuses, they have less to lose from losing their job in the first place.
- If we do not keep the highly paid senior sales rep, we're going to have no customers and thus... everyone gets canned.
- They are objectively better off leaving for another firm, where they don't need to worry about impending doom. So we need to provide an appropriate incentive to prevent them from breaking ranks and screwing everyone else left behind.
- The humble factory worker or customer service person doesn't have that same kind of impact on the whole....
Any moral conversation ultimately becomes a discussion about why someone with objectively better and safer options should continue to work for a company that is paying them less than market. Unless everyone else is willing to work for reduced salary / benefits and promise not to quit, that's not a morally tenable position....
Personally, I'd love it if people acted for the greater good. That's not going to happen here, unless you want to restrict people from changing employers and force them to show up to work...
I guess the real answer here is I'm not cut out to be an exec and I don't understand the mindset of people who are because I'm fine getting payed $100k a year (modulo inflation) for the rest of my life and I've lived most of my career at $30k, and I would never fire anyone to increase my own salary. I would sooner go broke at a company I ran than hang people out to dry who depended on me for a livelihood.
> and I would never fire anyone to increase my own salary
How about this instead? Your company is overstaffed due to a massive drop in sales. You will run out of money and will have to fire everyone including yourself in one month. Your other choice is to cut 80% of the staff immediately and your business will make enough to pay everyone’s salary who remains.
The better choice for everyone is the surviving business, and that’s the one that puts more money in your pocket. Letting people go is a business decision and it’s very often the correct one. Good business decisions lead to making more money.
That's not what we're talking about, though. If you suddenly don't have the market you used to, then it makes sense to cut down your workforce to be the appropriate size for the market you do have.
But that doesn't mean it's ethical to then throw money at your executives just to keep them around. If the business is viable with the smaller market and smaller workforce, then the executives should either stick around based on the company's future prospects, or leave. If they want to leave, then perhaps executives of their caliber aren't required to run the company given its new reality. Getting them to stick around by showering them with more money just increases wage inequality.
“Showering them with more money” in these scenarios is “give them some more stock” to try to offset the 90% of their income they just lost due to the stock becoming near worthless.
And they also have less incentive to stay because these are supposedly people who could provide the same work for other companies in similar situations at the same or higher prices. I find myself in this situation right now: ill stay on at higher prices if the company wants to renew its contract, or i'll leave for another place (I have more people emailing me for work than I have before the pandemic and I'm not on any social media and don't have a personal website).
In an environment where businesses have been operating on massive leverage for years, there's a fight brewing over who is going to get cash-flows and who will not, this obviously extends to workers who have outsized impact on whether any given business will stay open or file chapter 7/11.
If I'm at a place where people will lose their jobs if I leave the company the answer is simple: I don't leave until that's either not the case or I personally can't afford it anymore.
I owe no loyalties to corporates, I have other interests that I would like to spend time on and pursue more than convincing stakeholders to make decisions that should have been made long ago to have them avoided being put in the position they are now.
If people insist on making choices that will continue to sink the ship, I don't have to go down with it.
>If people insist on making choices that will continue to sink the ship, I don't have to go down with it.
I think this calculus flips around when your commitment has entered a stage where other peoples' livelihoods depend on it, basically. That's all. Get out before it springs a leak in an org like that, is my advice.
My point is frequently your world descends into a flaming pile of shit unannounced.
Go ask the career restaurant workers how the year is going. Go ask the tourism guides and travel agents. Go ask their bosses how they intend to keep the doors open with an 80% decline in revenue.
I don’t understand what your point is. You think I don’t get this? This is a thread about giving executives bonuses when the company is going bankrupt.
No, it’s a thread about rewarding executives for managing to keep any semblance of a company alive. A company that comes out of bankruptcy is much more valuable than one that doesn’t. The shareholders have to compensate the execs enough to entice them to go through that rather than leave for greener pastures where their shares won’t be worthless and they won’t have to fire people.
That seems to be the "common sense knowledge", but I see little evidence to back that up. Yes, certainly for a specific company, coming out of bankruptcy is more valuable than not, but I'm not convinced it's always a net positive for society as a whole, especially if doing so requires things like exacerbating our already messed up wage inequality situation.
> I think this calculus flips around when your commitment has entered a stage where other peoples' livelihoods depend on it, basically.
For you, not for others.
> Get out before it springs a leak in an org like that, is my advice.
I'll be fine for a long time even if the company goes under, others may not though, I've seen it happen way too many times to not be prepared for stuff like this. And I can just accept an offer from another place rather than outright reject them.
>I'll be fine for a long time even if the company goes under, others may not though, I've seen it happen way too many times to not be prepared for stuff like this.
Yeah, and it's their problem up until the point at which the situation is unrecoverable without you, and even then it's still mostly theirs, but I would have a lot of hangups about acting in a situation like that.
> Yeah, and it's their problem up until the point at which the situation is unrecoverable without you, and even then it's still mostly theirs, but I would have a lot of hangups about acting in a situation like that.
It's business, things fail. The problem is that people have come to accept that things shouldn't fail has made it so that it has built up to the point where it is today. Id call this environment Dirac-delta solvency.
I mean, some things shouldn't fail. I would have less qualms about all of this stuff with a strong social safety net, but we don't have that in the US.
This is just asking for rude awakenings. History is full of these kinds of events of where people thought things shouldn't fail, never prepared for them, and they did.
> I would have less qualms about all of this stuff with a strong social safety net, but we don't have that in the US.
No one lives in an environment where one can miss-allocate resources indefinitely or under assumptions that somethings can never change.
> This is just asking for rude awakenings. History is full of these kinds of events of where people thought things shouldn't fail, never prepared for them, and they did.
When I say some things shouldn’t fail, I mean our collective ability to keep each other alive and well. Whatever business of the day can go fuck itself, I don’t care.
> No one lives in an environment where one can miss-allocate resources indefinitely or under assumptions that somethings can never change.
What assumptions are you talking about? I’m talking about welfare.
> What assumptions are you talking about? I’m talking about welfare.
Welfare takes resources, takes people agreeing on what resources are acceptable for welfare and what is not, resources people have to produce and distrubute at some cost, takes people who may be better at managing such costs or inflating them to outsized proportions… any country that has deficits growing larger and larger every year can not continue to provide welfare indefinitely without making hard decisions that not all people will be ok with.
Some people may decide to leave for countries that are willing to make those hard decisions, rather than stay in those that want to punt on it until they face an analogous dynamic that Chinua Achebe has described pretty well.
I actually liked the company I just left. I liked the people and thought that the people in management up to and including management were all good people. I am usually far more cynical.
Post Covid, they decided to give everyone a pay cut instead of laying off people. This was morally the right thing to do in my opinion. It is a small company and I didn’t feel we had any dead weight.
I knew that in my position, the company would struggle a little bit. But what was I suppose to do? Stay out of loyalty or accept an offer that was a 60% increase in total comp at a more stable company?
Take care of who? From the parent's tale, it sounds like 90% of the company got laid off anyway. They didn't get taken care of. Even if they did get some kind of severance package, they could have gotten more if the executives weren't paid retention bonuses and the company was just allowed to fail.
The bottom line is that most of the people who got hurt by a company's decline get zero say in how things go during that period, and obviously the people with the power are going to try to save the thing that signs their paychecks, even at the expense of the replaceable workers.
If he had either Avie Tevanian or Bertrand Serlet, the rest could be replaced. I was originally going to say he’d need both, but in reality one would do at a pinch.
And yet 1 - those people were also there when the disaster happened.
And yet 2 - good luck getting the business back up to a reasonable operating volume with just those people.
And yet 3 - in many failures the people at that level are directly responsible for the failure.
Force majeure lightning-strike failures are very much a minority. Many businesses fail because of avoidable mistakes made by poor management. Please explain why management should be rewarded for that.
Luck plays into business so much now than people assume. Incomplete information and unpredictable black swan events mean you're not making decisions with certainty. You make the best decision with the information you have, try not to spend more time once you get to diminishing returns, and you hope things work out. Executive talent will not ensure success, but it can raise the odds. But on the other side, a dearth of executive talent can still ensure defeat.
This idea that success is all about, mostly about, or largely about luck is intellectually lazy, is extremely misleading, and stokes envy. None of that benefits society.
To benefit from luck, you have to put yourself in position to get lucky, which does not happen by accident. There is all the difference in the world between good timing and dumb luck. Yes, we can all think of anecdotes where someone did buffoonishly stumble into good fortune, but insisting that this is a fair representative of all cases is the fallacy of composition.
Hate to break it to you but that is EXACTLY what is going on here. Some people have EXPONENTIALLY more impact on saving a business than everyone else in the building. Real world examples:
- Two sales people who knew every high profit customer in our local market, which was the core of our turnaround plan
- My product engineer, with "the specs in her head". We could have never rebooted the business without her.
- The last manufacturing engineer standing, who we needed in the event we could secure a new facility for operations.
- My boss, the master deal maker who knew every major retail chain on our side of the country. Our secret to rebuilding the critical mass required for survival.
- One commercial manager (there were two of us), who was tasked with re-balancing the entire business on the fly to deal with massive swings in costs and competitor activity. Our pre-fire business model was completely shot and the banks cut us off, so we needed to reorganize around the new reality and find a way to generate positive cash flow to survive.
Without those five people / groups, the game was over - there would be no recovery plan, no road back to sustainable operations. Everyone else is irrelevant, potential cost savings when we needed them. You are playing a very high stakes short term game for the humble prize of survival...
Finance's job was basically to keep the tie fighters off our back, keep the lawyers, bankers, and insurance people away from folks doing the actual work. Customer Service was there to gently wind down relationships with non-critical accounts, in the vague hopes we could come back someday. We were able to give a few people some runway on those teams, moving anyone who wasn't able to hit the street immediately onto those lists to give them a little more time.
And your key people are irreplaceable in that world. There's no way someone of equivalent expertise is walking into that mess for what you're able to pay them.
At an individual level? We had to invoke our worst endgame due to other issues (deal fell apart); four of the critical five are no longer with the company. Each of them landed with a promotion and a fairly substantial raise elsewhere, often with instructions to "go take their business back". (at that point, it was open season for those accounts; our prior employer was unable to service them) The typical job search for that level of talent is hours / days rather than weeks or months (there is a very specific set of people who will hire them immediately if given the chance) .
Any visions of nobility needs to balanced against your obligations to support your spouse and children. You're going to sacrifice your kids future for some random people they never met? Your spouse is cool with that? Get real. (Mine knew what was going to happen; I had "the talk" with her beforehand. We knew my job was going to be eliminated and I couldn't break ranks without screwing my people. But we've both done turnaround work before, so we had a plan to handle it. She's one in a million.)
So that's the shit-show you're trying to hold together.
Heck, I had a financial model sitting on my laptop to go buy one of my dying brands from the company, once it was very apparent that they weren't able to protect it. At that point, it was basically sitting by the side of the road waiting for someone to claim it...