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Hostess, which had been contributing $100 million a year in pension costs for workers, offered workers a new contract that would've slashed that to $25 million a year, in addition to wage cuts and a 17 percent reduction in health benefits. The baker's union rejected the offer and decided to strike.
Rayburn said that Hostess was already operating on razor thin margins and that the strike was the final blow. The baker's union said the company's demise was the result of mismanagement, not the strike. It pointed to the steep raises executives were given last year as the company was spiraling down toward bankruptcy.
One of the pieces of information circulated to support the latter point of view was the claim that several Hostess executives received hefty pay raises even as the company was preparing a
Chapter 11 bankruptcy filing, raises which included a tripling of then-Hostess CEO Brian Driscoll's salary. Court filings and company statements indicate that Hostess did approve large salary increases for its top executives, but how much additional pay those executives may actually have received is unclear, as many of them subsequently left the company, renounced some or all of their raises, or agreed to steep pay cuts.
According to an April 2012 report by the
Wall Street Journal, Hostess' creditors claimed that in July 2011 the company had manipulated executive pay by approving large salary increases for top executives (in place of performance-based bonuses) in order to skirt bankruptcy rules:
Creditors of Hostess Brands Inc. said in court papers the company may have "manipulated" its executives' salaries higher in the months leading up to its Chapter 11 filing, in what the creditors called a possible effort by Hostess to "sidestep" Bankruptcy Code compensation provisions.
The committee representing Hostess's unsecured creditors alleges that information it has gathered suggests "the possibility" that the company converted a chunk of its top executives' pay from performance-based bonuses to salary, "at least in part to sidestep" rules designed to ensure that companies in bankruptcy aren't enticing their employees to stay on board with the promise of cash, according to documents filed with the U.S. Bankruptcy Court in White Plains, N.Y.
A Hostess spokesman asserted that the raises in question were routine ones based on merit rather than manipulation:
According to the creditors' court papers, lawyers for Hostess maintain that modifications to compensation before a filing aren't subject to the bankruptcy provision regarding incentive compensation.
A spokesman for Hostess said the company doesn't believe the creditors' "theory has any basis in law." He said the executives' salaries were increased at a routine compensation review "to align them with industry standards and because the executives were being asked to take on significant additional responsibilities associated with trying to restructure the company outside of bankruptcy proceedings."
That article also provided a chart of Hostess executive salary raises which had been approved the previous July, while noting that court documents stated CEO Brian Driscoll had "renounced a portion of the increase":
Salary Increases at Hostess
Brian Driscoll, CEO, around $750,000 to $2,550,000
Gary Wandschneider, EVP, $500,000 to $900,000
John Stewart, EVP, $400,000 to $700,000
David Loeser, EVP, $375,000 to $656,256
Kent Magill, EVP, $375,000 to $656,256
Richard Seban, EVP, $375,000 to $656,256
John Akeson, SVP, $300,000 to $480,000
Steven Birgfeld, SVP, $240,000 to $360,000
Martha Ross, SVP, $240,000 to $360,000
Rob Kissick, SVP, $182,000 to $273,008
Five days after that article was published, the
Wall Street Journal reported that Hostess' new CEO,
Gregory F. Rayburn, had announced he was slashing executive compensation, and that the company's top four executives had temporarily agreed to cut their annual salaries to $1 while four other executives had agreed to return to their previous salary levels:
The chief executive of Hostess Brands Inc. said he is slashing executive compensation in the aftermath of creditor allegations that the company may have pushed management's salaries higher in the months leading up to its Chapter 11 bankruptcy filing in an effort to skirt bankruptcy rules.
Gregory F. Rayburn, a restructuring expert who took the helm at Hostess last month, said in an interview that the top four executives working under him had agreed to cut their annual salaries to $1 until the company emerges from bankruptcy or Dec. 31, whichever comes first. The executives — Gary Wandschneider, John Stewart, David Loeser and Richard Seban — had seen their salaries increase by 75% to 80% last July, at a time when the baking company had already hired restructuring lawyers, according to creditors.
Further down the totem pole at the Twinkie maker, four additional executives agreed to return to the salaries they were receiving before the July increase.
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