CEO Gaffe of the Week: Hostess


This year, I introduced a weekly series called "CEO Gaffe of the Week." Having come across more than a handful of questionable executive decisions last year when compiling my list of the worst CEOs of 2011, I thought it could be a learning experience for all of us if I pointed out apparent gaffes as they occur. Trusting your investments begins with trusting the leadership at the top -- and with leaders like these on your side, sometimes you don't need enemies!

This week, we're going to take a deep dive into the Twinkie debacle and Hostess' CEO, Gregory Rayburn.

The dunce cap
Without purposefully angering either the 15,000 workers set to lose their job from Hostess' bankruptcy filing and subsequent liquidation or the team of executives that made those decisions, I have to say I can't help but bang my head against the wall with regard to how the whole negotiation process between the labor union and Hostess' management went down.

On one hand you have the unions, which actually thought it would be better for the workers to lose their jobs completely than deal with another round of pay cuts. I can fully empathize with these workers who've seen their pay drop by more than 20% or even 30% in some cases over the past five years, but given the alternative of unemployment and a job market where it takes the average person 38 weeks to get rehired, I have to shake my head in contempt.

On the other side of the aisle is Gregory Rayburn and the executive management team that used iron fist tactics to drive Hostess into bankruptcy. It probably wouldn't have taken much -- perhaps a minor pay concession from both sides (union and management) -- to get everyone back to work. Instead, Rayburn and Hostess dangled workers' jobs on a line and attempted to use passive-aggressive liquidation threats to coerce them back to work.

Hostess isn't the first company to have a major spat with its unionized workers, but it is one of the very few to allow its standoff to run the company into the ground. In 1997, United Parcel Service workers walked off the job in order to get better job security and pension benefits. Unsurprisingly, the company eventually met those needs. In 2007, General Motors workers went on strike demanding better pay and benefits, which the company eventually conceded to. Even more recently than that, Verizon's workers got in on the act, walking off the job until they received the promise of long-term pension guarantees. The difference between these instances and Hostess' situation is that unions and management worked together to fix the problem.

To the corner, Mr. Rayburn
But enough about the huffing and puffing between Hostess' unions and executives; let's get to the real reason Gregory Rayburn gets the dunce cap this week.

According to The Huffington Post, Rayburn is cutting the remaining salaries of Hostess employees by 8% across the board; however, his salary of $1.5 million a year will remain untouched! Rayburn's reasoning is that he doesn't need to cut his pay since he's not on Hostess' payroll. In a minor defense of Rayburn, he was entitled to receive a bonus ranging from $375,000 to $1.125 million this year (for who knows what, may I add) but turned down receiving the money. Still, that aside, what fantasyland is Rayburn living in that he can justify paying himself $1.5 million annually while jettisoning every job around him and reducing the salaries of those who remain? In addition, a bankruptcy judge authorized the company to use $1.75 million as retention bonuses for top executives that are helping wind down Hostess' operations!

Twinkies may have stopped being made, at least for the time being anyway, but it looks like someone's still getting a very sweet deal. I wag my finger in disdain at you, Mr. Rayburn!

Do you have a CEO you'd like to nominate for this dubious honor? Shoot me an email and a one- or two-sentence description of why your choice deserves next week's nomination, and you just may see your suggestion in the spotlight.

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Fool contributor Sean Williams has no material interest in any companies mentioned in this article. You can follow him on CAPS under the screen name TMFUltraLong, track every pick he makes under the screen name TrackUltraLong, and check him out on Twitter, where he goes by the handle @TMFUltraLong.Motley Fool newsletter services have recommended creating a bull call spread position in United Parcel Service and General Motors. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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