Single question caselet:
Rahul is a corporate turnaround artist, and having previously steered LSI and Asiana Airlines through bankruptcy, he is now attempting to do the same with KBS, the nation's largest supplier of escalator parts. It's shaping up as a bumpy ride. Days after KBS filed for bankruptcy protection on Jan 23, he was criticized for providing a generous severance package for the senior management while indicating that he planned to ask for steep cuts in pay and benefits from the company's more than 67,000 unionized workers.
KBS's move puts the retirement pensions of its 40,000 U.S. employees and 18,000 retirees at risk and worsens the eroding position of its chief customer, NM escalators, which announced a 3.5 billion dollar third quarter loss recently. NM is contractually obligated to pay thousands of KBS workers a portion of any benefits they might lose in bankruptcy, a bill that could run as high as 17 billion dollars. One immediate reason for KBS's filing was to forestall a 2.32 billion dollar payment it was required to make to its pension programs in January. Rahul blames the defined pension benefit, which he calls an "anachronism," for his company's downfall and points to the downward wage pressure exerted by globalization for precipitating the current crisis.
It was recently disclosed in the media that Rahul received $3 million as a signing bonus when he joined the company. As a director of KBS, you are expected to speak at the Annual General Meeting to pacify the fears of shareholders. Which of the following is likely to be your explanation for the decision?
- Rahul has promised to infuse capital into KBS using a network of private-equity investors.
- Financial incentives are a necessary evil during the economic downturn.
- Rahul’s previous employers have paid him higher signing bonuses to improve the turnaround of their companies
- The signing bonus was paid after a thorough background check and keeping in mind Rahul’s successful history of working with bankrupt companies.
- Rahul was only halfway through his term as CEO with OBS, when he was offered the position at KBS; it would thus, require him to forfeit a large part of his salary.