Hostess Execs Denied Bonuses by DOJ. Agree to Mediation.

Hostess executives and the baker's union, which is currently on strike, have agreed to mediation.

(Reuters) - Hostess Brands Inc, its lenders and the unions representing its striking workers, agreed to start mediation hearings on Tuesday at the urging of a bankruptcy court judge.

A hearing on Monday during which the bankrupt maker of Twinkies snack cakes and Wonder Bread was set to ask for permission to liquidate was quickly adjourned until Wednesday after the judge urged the parties to mediate in private.

The good news is that it's possible 18,500 people will not end up losing their jobs, however it's worth pointing out that, coincidentally, or perhaps not-coincidentally, Hostess executives agreed to mediation only after the Department of Justice thwarted their request to pay additional bonuses this afternoon.

(Reuters) - Hostess Brands Inc, the maker of the iconic Twinkies snack cake, will square off in a bankruptcy court on Monday against an agent of the U.S. Justice Department, who says the wind-down plan is too generous to management.

The U.S. Trustee, an agent of the U.S. Department of Justice who oversees bankruptcy cases, said in court documents it is opposed to the wind-down plan because Hostess plans improper bonuses to company insiders.

The 82-year-old Hostess wants permission to pay senior management a bonus of up to 75 percent of their annual pay so they will stay on and help wind-down the business.

More from Fortune

"The cessation of ... operations is not a simple matter of turning off the lights and shutting the doors," the company wrote in a court filing. "A freefall shutdown and fire sale liquidation" could result in damaged production equipment and the "improper disposal" of waste, the company added.

Under the plan, bonuses ranging from $7,400 to $130,500 will be paid to 19 executives. The company argues the bonuses are below market rates for such payments.

After the Department of Justice thwarted the company's plans to pay new bonuses while liquidating the company, both sides agreed to mediation at the urging of U.S Bankruptcy Judge Robert Drain.

Mediation will begin tomorrow.

For more on how the company arrived at this point, see here.

(h/t Rockville Criminal Defense Attorney Kush Arora)

  • Pgh

    Nice threat “improper disposal of waste.” We’ll leave a mess behind for the government to clean up.

    • dcares

      Unless the waste is considered “toxic” – there is no real threat or issue here. Procedures for disposal of company “waste” should already be in place. It doesn’t require management capability to fill a dumpster. Equipment liquidation can be done by auction or outside contractors.

  • st0815

    Look the idea is that you get a bonus when you’ve done well. You’ve bankrupted the company, so you do not deserve a bonus.

    • And what happens if those executives just leave? And let the company 100% self destruct during liquidation? Who do you think that’s going to hurt the most, Fat Cat Wall Street Bankers????

      • st0815

        They are going to leave if someone offers them a new job, anyway. Do you think they are going to stick around just for the bonus – in a job which they know will disappear within a short time?

        • When those bonuses likely come with contractual obligations to stay, yes.

          • Jennifer Fiche

            You misunderstand the word “bonus”. There is no obligation.

        • dcares

          I agree with sto815 that this is not a situation for “bonuses”. If there’s remaining company money to “liquidate” the right thing to do with it is give all immediately terminated employees a severence pay – helping tide them over till they can find another job. In a company “liquidation” a “downsized” minimum number of execs and key front line workers are needed to wrap things up. Job descriptions would of necessity evolve and expand since it’s not “business as usual”. Those who are asked and voluntarily agree to stay under conditions of appropriate job “re-assignment” (voluntarily is the operative word here) to help with the shut down process should receive their typical pay for the duration of work done.

      • And what happens if the workers just leave during liquidation? You know, the ones who actually work with the equipment that they don’t want damaged.

        As a senior manager myself, senior managers are far more interchangeable than the workers who know the equipment, facilities, and details of the work done. This is how predatory liquidators do it anyway. You need experts on understanding the books and organization, but those are generally quite standardized and well documented (e.g., ISO standards, accounting standards).

        It is the specifics of the company work, for which most managers don’t understand, that outside people can’t do well.

  • Roo Miller

    How about let the “Executives” leave and let the people run the business? I bet you’d see a pretty quick turnaround without moochers syphoning money off the top.

    • jasonallen19

      If the ‘people’ could run a business like hostess, most of them would have left and moved on by now. Put the union’s in charge, and they will just pilfer the company the same way.

      That’s what happens to a dying company. It gets fed on like a carcass.

      • Actually, worker cooperatives are not only quite viable, then tend to be slightly more productive than conventional businesses (http://en.wikipedia.org/wiki/Worker_cooperative#An_economic_model:_The_labor-managed_firm)

        Specifically, “profit sharing, worker ownership, and worker participation in decision making are all positively associated with productivity”: http://www.jstor.org/discover/10.2307/2524912?uid=3739448&uid=2129&uid=2&uid=70&uid=3737720&uid=4&sid=21101400527691

        • jasonallen19

          I’m on board with that. Worker cooperatives are different than unions though. A union (who’s interest lies with the union, not the business) isn’t needed for collectives. My point was that for the most part, the employee base more than likely has little management talent in it because anybody with management talent would have left the company and found better work elsewhere.

          • danistrad

            Over 18,000 people with only 19 “managers”? Surely, you can’t be serious.

          • jasonallen19

            Executive management talent. Not floor or line management.

            Either way, it’s a pretty powerful question. If these employees are under paid and hostess has been circling the drain for years, why haven’t they all quit and left yet? It’s pretty obvious it’s because they are overpaid union workers and they can’t go anywhere else and get that kind of pay.

    • So your argument is that coordinating thousands of people across numerous locations is such a trivial assignment that people who have vast experience in this couldn’t manage to succeed at it profitably, could then be handed to people that have no experience at this and that they could do it successfully?


      • StriderDogBlues

        So your argument is that people who raise their own salaries by 300% while their company goes down the tubes have “vast experience”?


        • You both have very valid points.


        • I think your confusing previous management that is no longer there with the current management who actually only receive salary of $1. http://www.nypost.com/p/news/business/hostess_dough_cut_U3uJ0MELraEEdw8xSPoPKN but don’t let facts get in the way of Occupier mentality.

          • Did you read your own link?

            “Facing an internal revolt, Hostess Brands will roll back pay raises it doled out to top managers”

            “The move came after the company’s creditors slammed Hostess in court papers for jacking up managers’ salaries in July after it had already hired restructuring lawyers.”

            “The creditors accused Hostess of sidestepping rules designed to prevent distressed companies from paying big rewards to keep executives from bolting.”

            It is the “Occupier mentality” that caused them to pull back those raises. Don’t let the facts get in your way either.

          • Jennifer Fiche

            You’re just an apologist shill. Read your own link.

  • muselet

    Several unions also objected to the company’s plans, saying they made “a mockery” of laws protecting collective bargaining agreements in bankruptcy. The Teamsters, which represents 7,900 Hostess workers, said the company’s plan would improperly cut the ability of remaining workers to use sick days and vacation.

    And yet management aims to pay itself bonuses. But wait, they have an explanation:

    “A freefall shutdown and fire sale liquidation” could result in damaged production equipment and the “improper disposal” of waste, the company added.

    Right, because senior management—the guys with the $2500 suits, soft hands and manicures—will be out there on the floor, moving equipment and disposing of waste.

    Isn’t looting supposed to be illegal?


  • D_C_Wilson

    Those Hostess execs better get there act together or Tallahassee Florida is going to be coming after them!