What I've been hearing on the internet is that companies are racing to lay off as many people as they need to now, before applying for their free bailout money from the government. It also sounds like businesses are trying to lay off more than they actually need to lay off, in order to get the maximum benefit.
The terms of the bailout loans are such that they can lay off people before they apply, get the money, and so long as they don't lay off any additional people after they get the money, the loan converts into a grant (i.e., a free bailout from the Federal government).
My personal opinion is that giving free money to companies is a terrible idea, and they should just give helicopter money to individuals. Companies are going to engineer this to their maximum benefit, and the amount of money going to companies is much much greater than the amount going to individuals.
Interesting times we live in. It's important to ignore what people say, and instead focus on what they actually do.
Business owner here. First, let me dispel the myth that business owners are wealthy. All of my friends from school have more liquid assets than I do. I am utterly broke unless you count for the paper wealth of my company shares.
When COVID hit, within a week we had customers dropping out of our sales funnel. Half of our expected revenue growth disappeared as customers decided to reduce risk and stick with existing solutions. This is what happens when the market goes “risk off”.
My company, like most, is leveraged. If I don’t earn positive cash flow, covenants on my debt will trigger a default, instantly ruining the firm. One default cascades to all the facilities, because that’s how debt works.
So, if I need to get to cash flow neutral, I am going to lay people off. I have no other option. It’s either that, or ruin.
This is why the government is supporting businesses by effectively becoming a lender of last resort. By tapping government loans, I can maintain my employees while we wait out what will probably be a short period of downturn. The money I have been offered is three year. Three years from now, we have either figured this thing out or we are living in caves. I’ll pay back the loan and my employees will keep their jobs. That’s how this works.
If I could provide feedback to policy makers: government should get something in return for the largesse. A small stake in each company, for instance, that we have the option of buying back at cost later. Because if society is supporting my business, society should have a stake in its recovery. I have not seen that happening anywhere.
People like to compare the current situation to wartime and I think some of the parallels are useful.
In wartime there is a much stronger moral backlash against perceived profiteering. We're seeing it in the UK with campaigns to boycott companies that have already shown no desire to share the nation's pain.
Hopefully companies that cynically abuse the bailout will find themselves tarnished in a way that is harder to shake off than it usually is.
> The terms of the bailout loans are such that they can lay off people before they apply, get the money, and so long as they don't lay off any additional people after they get the money, the loan converts into a grant.
This is false. The formula for the maximum amount of the loan is based on last years employment levels, or optionally, for companies that were not in business last year, based on January-February employment levels.
Any layoffs now do not help make the loan any larger, they will in fact reduce the size of the loan.
See Section 1102(a)(2)(36)(E) and 1106(d)(2).
The formula for the amount of the loan which can be forgiven is based on the employment levels remaining at last year's levels. There is an exemption in the case of tipped workers, as long as any layoffs are hired back by June 30th. (that is to say, the number of employees, not the same employees)
The amount of loan forgiveness under this section shall be
reduced, but not increased, by multiplying the amount described
in subsection (b) by the quotient obtained by dividing--
(i) the average number of full-time equivalent
employees per month employed by the eligible recipient
during the covered period; by
(ii)(I) at the election of the borrower--
(aa) the average number of full-time equivalent
employees per month employed by the eligible recipient
during the period beginning on February 15, 2019 and
ending on June 30, 2019; or
(bb) the average number of full-time equivalent
employees per month employed by the eligible recipient
during the period beginning on January 1, 2020 and
ending on February 29, 2020;
(II) in the case of an eligible recipient that is
seasonal employer, as determined by the
Administrator, ...
Companies (with enough lobbyists) will take advantage of things sure. But thats a small subset of companies that will definitely need help restarting.
Many businesses forced to shutdown ops thanks to the lockdown continue to pay staff, bills, rents, suppliers etc etc even though there is zero cash flowing in. Everyday the loss mounts. And its not like govt paying the employees directly wipes that loss out when they return to work.
Most business aren't run by people just sitting around waiting for Godzilla to show up, to lay people off and get bailouts from govt.
Let's remember that the businesses need this bailout because state and local governments forced them to cease operations for an unspecified amount of time.
It's entirely reasonable for businesses to be compensated by the government in this situation. It's also reasonable to point out that the compensation is not enough, and it won't come soon enough, and some businesses will need to lay off staff to survive until they get the check.
There's a good reason to support businesses: if you airdrop money to individuals, businesses will go under because they don't have any revenue. That'll result in job losses, and when the virus is under control, there won't be jobs for people (you can't start a business and ramp up to a large number of employees overnight--it's a big organizational problem).
But the support for businesses should be limited to those that aren't laying off people. Not with some window to lay them off now, and meet a requirement later.
Support for businesses needs to be designed to help workers.
This is totally backwards and makes no sense, I agree.
Bailout money should come only for those who keep the work force in place. European countries have a thing called "short-time work", where you put staff on restricted schedules and the government pays e.g. 80% of the difference between the normal and the shortened hours. This is thightly coupled to not being able to do mass layoffs while "short-time work" is in place.
Yeah all this "keep the payroll going" is an excuse to keep all the existing ownership in place. Helicopter money and let the firms go bankrupt, or if you must (ugh) take equity and create a sovereign wealth fund or disburse the shares among the people.
We can't keep the old oligopoly and bail them out. Loans and grants are both bailouts.
This. The money needs to go to individuals/families so they can survive and stimulate demand. Corporations are nothing more than fictitious entities that organize people for particular tasks and goals. If equity goes to zero, that is simply creative destruction and new corporations can be organized to fulfill the needed roles.
Some may do that, but if we don’t offer loans or bailouts to many companies (as well as bolster unemployment for the individuals) companies will surely lay even more people off, no?
"And the principle of really existing free market theory is: free markets are fine for you, but not for me. That’s, again, near a universal. So you — whoever you may be — you have to learn responsibility, and be subjected to market discipline, it’s good for your character, it’s tough love, and so on, and so forth. But me, I need the nanny State, to protect me from market discipline, so that I’ll be able to rant and rave about the marvels of the free market, while I’m getting properly subsidized and defended by everyone else, through the nanny State."
I agree with you with the first point, giving money to companies isn't a good idea but I think it's also a bad idea to give it to "the people". I think it would be better to change. My opinion is most people are going to buy thing they don't need. Instead we could focus on better ideas for the future.... I don't know maybe I'm too utopist...
Stewart Butterfield (Slack CEO) was asked if he'd commit to not doing layoffs and I appreciated his response[1]. Effectively pointing out that it's easy to just say yes in their position, and that it's presumptuous of Salesforce to be asking for no-layoff pledges. It's pretty meaningless and comes off as shallow or self-serving PR for types of businesses that are doing better than ever right now or can easily weather the event.
The CEO of Texas Roadhouse, a chain of restaurants, gave up his salary and bonuses to redirect to employees[2]. A particularly noteworthy example, I think.
The author of the original tweet is the CEO of Gravity Payments, a Square competitor that mostly serves smaller retail and restaurant businesses. In further tweets he talks about how they're losing tons of revenue right now. I agree that it's shallow for Slack and Salesforce to pledge not to have layoffs but in this case I think it's a pretty meaningful commitment.
Almost everyone I know who has run a business (myself included) has made similar sacrifices. This is not that rare. This guy seems to serially try to generate PR by making himself out to be a selfless CEO. In doing so, he is implying that most other CEOs/business owners are bad people.
It’s important there are vocal leaders showing the sacrifices they are making — otherwise it’s easy for others to pretend it isn’t possible to make the same sacrifice.
I don't think the second sentence follows. Good people existing does not imply that everyone else is bad.
What's more, signaling corporate responsibility + personal ethics is a part of his company in the same way that Elon Musk's flamboyancy is a part of Tesla.
I'm confused as to how he managed to parlay a tsunamic reaction of 500M social media interactions into a 16yo company whose finances are in need of slashing the CEO's salary to zero.
Not to be pessimistic but I assume when a CEO cuts their salary there are other forms of compensation like stock. Maybe someone here with more experience can weigh in?
Cutting $70k only helps one person keep their job. How many employees do they have?
Anyways, I still applaud his desire to keep 100% of his employees. It is noble. Board and shareholders might disagree but it is nice to see someone looking out for the people ahead of the business in this time.
He revealed to Inc. that he has sold all his stocks, emptied his retirement accounts, and mortgaged his two properties -- including a $1.2 million home with a view of Puget Sound -- and poured the $3 million he raised into Gravity. As majority owner, he is not exactly penniless.
I always wonder - when they calculate the dollars and cents of layoffs vs. hiring etc. Do they factor in the cost of losing employees, expertise, talent?
There's probably financial value that's hard to model/capture in the balance sheet by retaining employees and building up the average years of experience in your workforce, etc.
I don't know much about this guy but when I hear a founder CEO cutting his pay to $0, I have to roll my eyes. Vast majority of CEO comp is in equity so cutting base pay to $0 has no material meaning. In addition, successful founder CEOs have typically already cashed out to the tune of millions of dollars while still retaining significant stock. With that much cash in the bank + ownership stack, the annual salaries or bonuses are icing on the cake. No CEO without a significant ownership stack is going to settle with $0 or even $70k.
I am aware of this, of course, and always find it interesting ...
According to my own understanding of US tax code(s), one must not reduce their w-2 income to zero - or even relatively small numbers that do not befit their position or responsibilities.
The issue here is that a funding for welfare programs, such as social security, are taken from wage earnings. It is, in fact, preferable for me, as a business owner, to reduce wages to zero and take compensation in the form of dividends or distributions.
But I cannot legally do that. I have been advised by multiple tax professionals that not only can I not do that, but I cannot have a conspicuously low salary. At the very least I need to hit the max social security threshold to avoid scrutiny.
So I always wonder how these $1 and $0 earners make this work on their personal tax returns ...
That's the idea, no? Ownership is optionality, you can end up with 0 or with billions. Employment is security, you're "guaranteed" your salary but no more (or fired).
Sounds like he's promising security to his employees, and eating the variance himself - taking a hit in bad times and, conversely, making bank in good times. Sounds fair to me!
These days I wold argue that especially in small businesses and startups the first employees are the real risk takers. The owners/founders will usually find a way to get some money when a company is failing while the employees get nothing.
I wonder why we aren't hearing about companies selling more stock for funding. Sure it's at a huge discount, but better dilution than destruction, right? Is it just because the bailout loans offer them a better path? Or because they'd rather lay folks off than dilute?
Are we really patting people on the back for cutting their own pay to allow employees to be paid more? That's how economics work: if you want to pay X then you have to find that money somewhere.
I did not downvote you, but paying people more is not a zero-sum game. The pay rate of an employee is not necessarily contingent on the salary of a CEO. More money can be attained through the creation of value in an economy - this value will add wealth - this added wealth could allow for both the employee and the CEO to be paid more.
Because society needs feel good stories right now. I am not even joking. You probably did not realize how close to the abyss we have come last week. In practical terms, people suck when they are scared and hungry.
I rarely go for pop culture references, but it is very much applicable here:
“Their morals, their code; it's a bad joke. Dropped at the first sign of trouble. They're only as good as the world allows them to be."
And I am saying all this annoyed at the fact that I will be one of the people having to pay massive tax increases that will have to pay for all this.
There is still a stigma about people talking about money and how much they are making.
It's an important conversation to have, especially when the wealth gap between CEOs and regular people is so wide. The thing this guy is doing can potentially influence the ultra rich into giving up some of their enormous wealth.
brenden2|6 years ago
The terms of the bailout loans are such that they can lay off people before they apply, get the money, and so long as they don't lay off any additional people after they get the money, the loan converts into a grant (i.e., a free bailout from the Federal government).
My personal opinion is that giving free money to companies is a terrible idea, and they should just give helicopter money to individuals. Companies are going to engineer this to their maximum benefit, and the amount of money going to companies is much much greater than the amount going to individuals.
Interesting times we live in. It's important to ignore what people say, and instead focus on what they actually do.
ttul|6 years ago
When COVID hit, within a week we had customers dropping out of our sales funnel. Half of our expected revenue growth disappeared as customers decided to reduce risk and stick with existing solutions. This is what happens when the market goes “risk off”.
My company, like most, is leveraged. If I don’t earn positive cash flow, covenants on my debt will trigger a default, instantly ruining the firm. One default cascades to all the facilities, because that’s how debt works.
So, if I need to get to cash flow neutral, I am going to lay people off. I have no other option. It’s either that, or ruin.
This is why the government is supporting businesses by effectively becoming a lender of last resort. By tapping government loans, I can maintain my employees while we wait out what will probably be a short period of downturn. The money I have been offered is three year. Three years from now, we have either figured this thing out or we are living in caves. I’ll pay back the loan and my employees will keep their jobs. That’s how this works.
If I could provide feedback to policy makers: government should get something in return for the largesse. A small stake in each company, for instance, that we have the option of buying back at cost later. Because if society is supporting my business, society should have a stake in its recovery. I have not seen that happening anywhere.
andybak|6 years ago
In wartime there is a much stronger moral backlash against perceived profiteering. We're seeing it in the UK with campaigns to boycott companies that have already shown no desire to share the nation's pain.
Hopefully companies that cynically abuse the bailout will find themselves tarnished in a way that is harder to shake off than it usually is.
zaroth|6 years ago
This is false. The formula for the maximum amount of the loan is based on last years employment levels, or optionally, for companies that were not in business last year, based on January-February employment levels.
Any layoffs now do not help make the loan any larger, they will in fact reduce the size of the loan.
See Section 1102(a)(2)(36)(E) and 1106(d)(2).
The formula for the amount of the loan which can be forgiven is based on the employment levels remaining at last year's levels. There is an exemption in the case of tipped workers, as long as any layoffs are hired back by June 30th. (that is to say, the number of employees, not the same employees)
EDIT:
https://www.congress.gov/bill/116th-congress/house-bill/748/...
op03|6 years ago
Many businesses forced to shutdown ops thanks to the lockdown continue to pay staff, bills, rents, suppliers etc etc even though there is zero cash flowing in. Everyday the loss mounts. And its not like govt paying the employees directly wipes that loss out when they return to work.
Most business aren't run by people just sitting around waiting for Godzilla to show up, to lay people off and get bailouts from govt.
twblalock|6 years ago
It's entirely reasonable for businesses to be compensated by the government in this situation. It's also reasonable to point out that the compensation is not enough, and it won't come soon enough, and some businesses will need to lay off staff to survive until they get the check.
hyperpape|6 years ago
But the support for businesses should be limited to those that aren't laying off people. Not with some window to lay them off now, and meet a requirement later.
Support for businesses needs to be designed to help workers.
chinathrow|6 years ago
Bailout money should come only for those who keep the work force in place. European countries have a thing called "short-time work", where you put staff on restricted schedules and the government pays e.g. 80% of the difference between the normal and the shortened hours. This is thightly coupled to not being able to do mass layoffs while "short-time work" is in place.
unknown|6 years ago
[deleted]
Ericson2314|6 years ago
We can't keep the old oligopoly and bail them out. Loans and grants are both bailouts.
jdkee|6 years ago
ViViDboarder|6 years ago
matwood|6 years ago
praptak|6 years ago
https://chomsky.info/19960413/
goatherders|6 years ago
[deleted]
JakeAl|6 years ago
[deleted]
apta|6 years ago
fonkyyack|6 years ago
Reedx|6 years ago
The CEO of Texas Roadhouse, a chain of restaurants, gave up his salary and bonuses to redirect to employees[2]. A particularly noteworthy example, I think.
1. https://youtu.be/3aVh0QYPtVI?t=427
2. https://abc13.com/6052453/
zaksoup|6 years ago
liamcardenas|6 years ago
Judson|6 years ago
It’s important there are vocal leaders showing the sacrifices they are making — otherwise it’s easy for others to pretend it isn’t possible to make the same sacrifice.
Hasz|6 years ago
What's more, signaling corporate responsibility + personal ethics is a part of his company in the same way that Elon Musk's flamboyancy is a part of Tesla.
I much prefer the former.
keanzu|6 years ago
making a dramatic announcement to his 120-member staff on April 13, inviting NBC News and The New York Times to cover it
The reaction was tsunamic, with 500 million interactions on social media and NBC's video becoming the most shared in network history.
https://www.inc.com/magazine/201511/paul-keegan/does-more-pa...
I'm confused as to how he managed to parlay a tsunamic reaction of 500M social media interactions into a 16yo company whose finances are in need of slashing the CEO's salary to zero.
todd3834|6 years ago
Cutting $70k only helps one person keep their job. How many employees do they have?
Anyways, I still applaud his desire to keep 100% of his employees. It is noble. Board and shareholders might disagree but it is nice to see someone looking out for the people ahead of the business in this time.
DoctorOW|6 years ago
keanzu|6 years ago
120 employees
He revealed to Inc. that he has sold all his stocks, emptied his retirement accounts, and mortgaged his two properties -- including a $1.2 million home with a view of Puget Sound -- and poured the $3 million he raised into Gravity. As majority owner, he is not exactly penniless.
https://www.inc.com/magazine/201511/paul-keegan/does-more-pa...
He's the majority owner of Gravity
caycep|6 years ago
There's probably financial value that's hard to model/capture in the balance sheet by retaining employees and building up the average years of experience in your workforce, etc.
unknown|6 years ago
[deleted]
unknown|6 years ago
[deleted]
sytelus|6 years ago
benatkin|6 years ago
rsync|6 years ago
According to my own understanding of US tax code(s), one must not reduce their w-2 income to zero - or even relatively small numbers that do not befit their position or responsibilities.
The issue here is that a funding for welfare programs, such as social security, are taken from wage earnings. It is, in fact, preferable for me, as a business owner, to reduce wages to zero and take compensation in the form of dividends or distributions.
But I cannot legally do that. I have been advised by multiple tax professionals that not only can I not do that, but I cannot have a conspicuously low salary. At the very least I need to hit the max social security threshold to avoid scrutiny.
So I always wonder how these $1 and $0 earners make this work on their personal tax returns ...
GrumpyNl|6 years ago
outside1234|6 years ago
throwawaynerdy|6 years ago
This is an expensive (?) HR and PR Ad.
In 10 years the popularity of the company should be higher than today, the company will be sold and gutted.
tomp|6 years ago
Sounds like he's promising security to his employees, and eating the variance himself - taking a hit in bad times and, conversely, making bank in good times. Sounds fair to me!
keanzu|6 years ago
As majority owner, he is not exactly penniless.
https://www.inc.com/magazine/201511/paul-keegan/does-more-pa...
amelius|6 years ago
Ididntdothis|6 years ago
jkestner|6 years ago
hizxy|6 years ago
6gvONxR4sf7o|6 years ago
wool_gather|6 years ago
ryanSrich|6 years ago
VCs are talking about how no net new deals are getting done, and the stock market is touch and go each week.
arkanciscan|6 years ago
twblalock|6 years ago
Large companies with cash in the bank may not have this problem, but small businesses often only have a few months of runway.
unknown|6 years ago
[deleted]
optimaton|6 years ago
goatherders|6 years ago
FillardMillmore|6 years ago
goatherders|6 years ago
effnorwood|6 years ago
[deleted]
ykevinator|6 years ago
[deleted]
adsljfl3|6 years ago
A4ET8a8uTh0|6 years ago
I rarely go for pop culture references, but it is very much applicable here:
“Their morals, their code; it's a bad joke. Dropped at the first sign of trouble. They're only as good as the world allows them to be."
And I am saying all this annoyed at the fact that I will be one of the people having to pay massive tax increases that will have to pay for all this.
memonkey|6 years ago
It's an important conversation to have, especially when the wealth gap between CEOs and regular people is so wide. The thing this guy is doing can potentially influence the ultra rich into giving up some of their enormous wealth.
laluser|6 years ago
dmode|6 years ago
econcon|6 years ago
Hitton|6 years ago
https://news.ycombinator.com/item?id=22441129
https://news.ycombinator.com/item?id=22441354
keanzu|6 years ago