Tuesday, November 20, 2012

More on Hostess

There is a rumor that Mark is preparing a nice post on the whole Hostess bankruptcy story.  So, to continue to generate context, consider this story from an actual employee:

In 2005 it was another contract year and this time there was no way out of concessions. The Union negotiated a deal that would save the company $150 million a year in labor. It was a tough internal battle to get people to vote for it. We turned it down twice. Finally the Union told us it was in our best interest and something had to give. So many of us, including myself, changed our votes and took the offer. Remember that next time you see CEO Rayburn on tv stating that we haven't sacrificed for this company. The company then emerged from bankruptcy. In 2005 before concessions I made $48,000, last year I made $34,000. My pay changed dramatically but at least I was still contributing to my self-funded pension.

In July of 2011 we received a letter from the company. It said that the $3+ per hour that we as a Union contribute to the pension was going to be 'borrowed' by the company until they could be profitable again. Then they would pay it all back. The Union was notified of this the same time and method as the individual members. No contact from the company to the Union on a national level.

This money will never be paid back. The company filed for bankruptcy and the judge ruled that the $3+ per hour was a debt the company couldn't repay. The Union continued to work despite this theft of our self-funded pension contributions for over a year. I consider this money stolen. No other word in the English language describes what they have done to this money.
 This illustrates a couple of things.  One is that defined contribution pensions (i.e. the 401(k) and other such vehicles) are not necessarily a safe harbor from corporate games if something like this can happen without the union proactively agreeing.  Two, the concessions made by the unions were pretty significant.  They took pretty large pay cuts (29%) and lost additional money from the pension fund.  No manager who made the decision to borrow this money was held liable. 

Maybe the company was in an impossible situation.  That is definitely one interpretation of the situation but the narrative is odd for this outcome.  The argument that unions were to blame is hardly the case unless this account (above) is wracked with falsehoods.  If the situation was hopeless then why did the high paid executives not call it over before raiding the pension?  Was it because a longer tenure of salaries and job experience would be of personal benefit to them and they were no liable for the consequences of their decisions? 

There are no easy answers, but a simple narrative of union greed or dysfunctional bargaining is clearly omitting lots of nuance.  If nothing else, reneging on the repayment of the pension fund borrowing was hardly the ideal prelude to asking the union to trust future management promises. 

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