Here’s a little story about corporate America.
It’s about how the capital class benefits, and workers get screwed, no matter the circumstances.
It is depressing, if utterly typical. But it contains some zingy writing from a federal bureaucrat! And that’s the sort of thing I like to celebrate. So read on.
Back in August 2015, the US coal mining giant Alpha Natural Resources filed for bankruptcy, facing billions in debt.
In 2011, it had bought out the mountaintop removal mining company Massey Coal from under coal baron Don Blankenship (recently convicted of conspiracy to avoid mine safety standards). The idea was to move more aggressively into Appalachian coal, banking on exports to compensate for the collapsing US coal market.
Instead, the $7.1 billion acquisition was a disaster, as coal exports failed to materialize.
In 2011, Alpha was trading at $65 a share. By the early part of 2015, it was down to around 35 cents. In July, the New York Stock Exchange suspended trading of Alpha stock in anticipation of its bankruptcy.
Since then, Alpha has laid off some 4,000 workers and filed for Chapter 11. Post-Massey, it operated well over 100 active mines; now it has closed all but 50.
Now. You’re a modern American corporation that has managed itself into bankruptcy. What to do?
Clearly job one is cutting costs, where “costs” means “obligations to one’s workers.”
Sure enough, Alpha is going after health and life insurance benefits it promised retired employees. Specifically, according to its court filing, it is trying to rescind “certain unvested, non-pension welfare benefits (e.g., hospital, medical, prescription, surgical and life insurance) currently offered to certain of [Alpha’s] non-union retirees.” Some 4,580 non-union miners and spouses would lose benefits under the filing.
Yanking health insurance from any retiree is bad enough, but these are people who spent their working lives in highly unsafe conditions; many now suffer from black lung and other coal-related ailments. (Though it is non-union workers at issue here, the United Mine Workers of America came to their defense anyway.)
The problem: Cutting off benefits to people who live in communities already suffering from massive job loss and poverty is kind of a dispiriting business.
These Alpha executives, the ones who managed the company into bankruptcy, how can their spirits be kept up as they strip health care from retirees who gave their lives to the company?
Their usual pay is okay, I guess. The Casper Star Tribune reports:
“Alpha CEO Kevin Crutchfield received $7.8 million in total compensation in 2014, financial filings show. Former President Paul Vining took home $4.5 million, the chief financial officer made $1.9 million and Executive Vice President Brian Sullivan earned $1.6 million.”
But when you’ve bankrupted your company and now you have to immiserate old and sick people, you need more of a picker-upper — a little something extra.
So Alpha proposed to pay these executives bonuses that could in some cases more than double their salaries. Depending on the cost cutting achieved, the bonuses could reach up to $11.9 million.
Alpha argued that the money was necessary to provide incentives for executives to help the company restructure out of bankruptcy, incentives presumably not provided by their salaries or legal obligations.
(Alpha also gave executives substantial performance bonuses last year, even as they were piloting the company into bankruptcy. Not clear what those incentives were for.)
Enter the US Trustee Program, a Department of Justice watchdog agency meant to protect the integrity of the bankruptcy system.
It had some objections to Alpha’s bonus program, objections so biting, so piquant, that they deserve to be quoted at length. This is from the Trustee’s court filing:
“Alpha Natural Resources, Inc. … filed the KEIP Motion requesting, inter alia, authority to pay 15 of its most highly compensated executives bonuses totaling over $11.9 Million in 2016. Alpha seeks this relief while at the same time incurring more than $1.3 Billion in losses for 2015. Alpha seeks this relief while at the same time seeking to cut off the health and life insurance benefits to some 1,200 rank-and-file retirees because it claims it desperately needs to save $3 Million a year. Alpha seeks this relief after demonstrating to this Court that it is so hopelessly insolvent that its shareholders have no chance of seeing any return on their investments into the companies.
“According to Alpha, these executives need these bonuses as an incentive to do the very jobs they were hired to do, that they are already highly compensated for with generous salaries, and which their fiduciary duties already compel them to do. Such bonuses cannot be justified under the facts and circumstances of this case.”
Then there’s a bit about how the “incentive program” in Alpha’s plan is based on metrics so easily met that it functions as “a disguised retention program,” which is “prohibited in bankruptcy cases absent extremely specific and unusual circumstances that do not exist here.”
And then there’s this detail, just for extra outrage:
“In addition to paying these bonuses, Alpha asks this Court’s permission to conceal the identity of executives taking these payments, the amount of the bonuses Alpha intends to pay each of these executives, and the compensation these executives are already receiving. In other words, Alpha seeks to conceal all of the information parties in interest would need to evaluate the propriety of the bonuses.
Disclosure is the cornerstone of bankruptcy relief. Alpha voluntarily sought the extraordinary relief and protection available under the Bankruptcy Code. The cost of that relief is full disclosure of its operations. If Alpha desires to pay secret bonuses to a confidential group of its top executives, it can certainly do so – just not while enjoying the protection and benefits of the Bankruptcy Code.”
That is good stuff! If you’re into that kind of thing.
Sadly, the Trustee’s biting prose was for naught. In a closed courtroom, a bankruptcy judge approved the bonus plan.
It wasn’t the first time. The Trustee filed a similar motion last year in the case of Patriot Coal, which was doing virtually the same thing — under cover of bankruptcy law, cutting benefits to retirees while raising bonuses for executives.
The court ruled in Patriot’s favor. The executives got their bonuses.
In both cases, the court cited the need to retain managers and the risks of restructuring. In neither case did the need to retain workers, or protect workers from risk, come up.
Alpha is not the first coal company to go bankrupt in the past few years. It won’t be the last. And if history has demonstrated anything, nobody is more brutal and ruthless in their treatment of coal miners than coal companies.
Under the Byzantine laws governing corporate capitalism, these companies can simply restructure; assets and tax liabilities are shuffled around like chess pieces, yet somehow when it’s over, nobody is responsible for the promises made to workers. They just get shuffled off the board.
Executives, however, always get their bonuses.
(This Vox Energy & Environment column appeared January 25 at vox.com.)