By Bruce Watson Posted 07/24/12
Ever since 2008, when sordid tales of big bonuses at bailed-out Wall Street banks flooded the news media, the huge checks that top executives often write themselves have been reliable class warfare bait. Little wonder: That year, amid failing banks, mass foreclosures, skyrocketing unemployment and frenzied bailouts, New York financial companies paid their workers an estimated $18.4 billion in bonuses.
Since then, Wall Street has gotten a bit more careful about its bonus structure. Many companies reduced their bonuses, some capped the amount that employees could receive, and still others found creative ways to conceal their biggest paychecks. Even so, banker bonuses remain a tough sell to the general public, especially when it appears that they are coming at the expense of average workers -- and taxpayers.
The New Bonus Math
Recently, Hawker Beechcraft (HBC), a Wichita-based aircraft company, landed at the cutting edge of the bonus battle. Earlier this year, it entered bankruptcy and is now in the process of being sold to a Chinese firm, Superior Aviation Beijing Co. Ltd. In return for negotiating the sale of the company, HBC's nine top executives are hoping to get more than $5.3 million in bonuses -- 200% of their base salaries. Meanwhile, another 31 members of management will presumably split $1.9 million.
And what of HBC's workers? In preparation for the sale, the company is trying to shed its pension fund, which is currently $751 million in the hole. To put it mildly, the company's new Chinese owners don't want responsibility for its pensions; one plan is to dump responsibility for the fund onto taxpayers through the Pension Benefit Guaranty Corporation, an agency of the federal government.
The Outsourcing Business Plan
This isn't the first time that Hawker Beechcraft has hung its workers out to dry. The company was formed in March 2007, when Goldman Sachs and Onex Partners, a Canadian investment firm bought the division from Raytheon. Seven months later, HBC opened a huge new factory in Chihuahua, Mexico.
Between October 2008 and mid-August 2009, the company laid off 2,800 employees -- 25% of its workforce. They got rid of another 300 in late August 2009, 240 in September 2009, 350 in October 2010, and 906 in 2012.
Even apart from the costs of providing for the company's laid-off workers, much of the bill for HBC's downfall has landed on taxpayers. In 2010, the company struck a deal with the state of Kansas, promising to keep 4,000 jobs in Wichita until 2020, in exchange for which it received $45 million in tax benefits.
Currently, the company has 4,100 workers in Wichita, but it's unclear if those jobs will survive the company's sale to China. According to the International Association of Machinists and Aerospace Workers, a union that represents 3,500 HBC workers, "there is no reason to believe that Superior, an entity owned and financed by the Chinese government and the Beijing municipal development corporations, would preserve jobs in the United States rather than eventually transporting the work to China."
Emptying the Coffers
For that matter, Hawker Beechcraft's slow-motion march to bankruptcy seems to have gone hand-in-hand with the deflation of its pension fund. Recently, The Atlantic's James Fallows quoted a former employee of the company who claimed that "The pension plan was fully funded at the time of the sale in 2007 and was 98% in 2009."
So, to recap: In 2007, a pair of investment funds bought HBC. They proceeded to fire over 4,000 workers, looted the company's pensions, and are now hoping to leave U.S. taxpayers holding the bag on their responsibilities while top execs sell the company to China and pocket $7.2 million in bonuses in the bargain.
As horrifying as the HBC story is, it's not uncommon. Recently, Kodak, MF Global, Lear Corp, Lee Enterprises, and dozens of other bankrupt companies have asked for permission to give their execs huge bonuses -- often while carrying billions in government bailout funds.
In context, it's not hard to see why many critics are arguing that Wall Street is playing by a skewed set of rules, and the middle class is paying the price.