Former Hostess Twinkies CEO tripled salary to $2.5m while preparing to file bankruptcy

CORRECTION: An earlier version of this story incorrectly conflated the former Hostess CEO, Brian Driscoll, whose salary was reportedly tripled, with the current CEO, Greg Rayburn.  For a detailed look at who did what, here’s Fortune/CNN:

Even as it played the numbers game, Hostess had to face chaos in the corner office at the worst possible time. Driscoll, the CEO, departed suddenly and without explanation in March. It may have been that the Teamsters no longer felt it could trust him. In early February, Hostess had asked the bankruptcy judge to approve a sweet new employment deal for Driscoll. Its terms guaranteed him a base annual salary of $1.5 million, plus cash incentives and “long-term incentive” compensation of up to $2 million. If Hostess liquidated or Driscoll were fired without cause, he’d still get severance pay of $1.95 million as long as he honored a noncompete agreement.

When the Teamsters saw the court motion, Ken Hall, the union’s secretary-treasurer and No. 2 man, was irate. So much, he thought, for what he described as Driscoll’s “happy talk” about “shared sacrifice.”

The board replaced Driscoll with Greg Rayburn, a restructuring expert Hostess had hired as a consultant only nine days earlier. Rayburn was a serial turnaround specialist who had worked with such high-profile distressed businesses as WorldCom, Muzak Holdings, and New York City Off-Track Betting. He became Hostess’s sixth CEO in a decade. Within a month of taking over, Rayburn had to preside over a public-relations fiasco. Some unsecured creditors had informed the court that last summer — as the company was crumbling — four top Hostess executives received raises of up to 80%. (Driscoll had also received a pay raise back then.) The Teamsters saw this as more management shenanigans. “Looting” is how Hall described it in TV interviews.

Rayburn announced that the pay of the four top executives would go down to $1 for the year, but that their full salaries would be reinstated no later than Jan. 1. Hostess pays Rayburn $125,000 a month, according to court filings.

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Triple the CEO’s Salary, then Blame Lack of Profits on the Union

Hostess Twinkies’ former CEO tripled his salary earlier this year to $2.55 million while the company knew it was heading towards  bankruptcy, according to a statement by the Bakery, Confectionery, Tobacco Workers and Grain Millers International Union.

And a number of top executives reportedly saw massive pay raises, some nearly doubling their salary. And now the new CEO is blaming the unions for the company’s demise.

Ah, another CEO who courageously blames the union for his company’s failure, while omitting the part about the company tripling his immediate predecessor’s pay, and reportedly doubling the salaries of other top executives, while knowing that the company was on life support. Damn unions, indeed.

Is this what they teach in business school these days? As popular as “peer group compensation benchmarking” is in the corporate world, there’s a distinct lack of evidence that higher compensation delivers results. (Case in point: Hostess. Second case in point: Wall Street.)

Sometimes More Salary Means Less Competence

There’s an odd myth in the corporate world that paying more for a CEO and executive team will mean Steve Jobs-like earnings results. In reality, that’s not the case. Just ask the US airline industry how that worked out for them as they went through bankruptcy after bankruptcy. The rate of executive pay keeps going up, and according to one study, it’s even higher than many of us realize.

Hostess products twinkies

These horror stories are striking a nerve with many Americans these days because they’re so much more common than they were in the past. The media loves to idolize these CEOs (think about CNBC and their regular slobbering over the loony Jack Welch), yet more and more of us have been on the losing end of these deals.

I’ve mentioned before that I had the opportunity to work with a Tea Party crazy who sold the company, just in case his taxes would increase after Obama was elected. Many of us lost our jobs almost immediately so that he might save a few percentage points on taxes, which of course, never happened.

I don’t expect the government to get involved much in these obscene salary cases, but I still hope that public opinion might build enough to start making this less acceptable. The high pay is still acceptable enough to investors who are asking for more voting rights, though still go along with the game.

Mitt Romney with someone’s cash

When You Point One Finger at the Unions…

Something needs to give, and hopefully it will happen soon. We’re all tired of the 1% living by one set of rules. and then blaming the rest of us for their problems, when we keep giving and they keep taking. Whether it’s Fox News’ O’Reilly accusing non-white voters of “wanting things,” or the failed Hostess CEO blaming his own failings on “the unions,” I’m tired of it, and I know that I’m not alone.

If Hostess was willing to triple its CEO’s salary, and double the salaries of other top execs, when they allegedly knew they were heading towards bankruptcy, then the problem at the company certainly seems to extend far beyond “the unions.”  Here’s the union’s take:

Over the past eight years since the first Hostess bankruptcy, BCTGM members have watched as money from previous concessions that was supposed to go towards capital investment, product development, plant improvement and new equipment, was squandered in executive bonuses, payouts to Wall Street investors and payments to high-priced attorneys and consultants.

BCTGM members are well aware that as the company was preparing to file for bankruptcy earlier this year, the then CEO of Hostess was awarded a 300 percent raise (from approximately $750,000 to $2,550,000) and at least nine other top executives of the company received massive pay raises. One such executive received a pay increase from $500,000 to $900,000 and another received one taking his salary from $375,000 to $656,256.

Over the past 15 months, Hostess workers have seen the company unilaterally end contractually-obligated payments to their pension plan. Despite saving more than $160 million with this action, the company continues to fall deeper and deeper into debt. A mountain of debt and gross mismanagement by a string of failed CEO’s with no true experience in the wholesale baking business have left this company unable to compete or survive.

So remember, in his bizarre world, the people who produce the products that the management team created are all to blame. Forget about failed market research, or high executive pay, or poorly financing the company — it’s completely the fault of the union workers. Got it?


An American in Paris, France. BA in History & Political Science from Ohio State. Provided consulting services to US software startups, launching new business overseas that have both IPO’d and sold to well-known global software companies. Currently launching a new cloud-based startup. Full bio here.

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