> Obviously my number would be the number that makes the most sense.
Current business success would suggest that 1200 is the number that makes the most sense, since it's the number that allowed the company to climb out of bankruptcy into profitability. Employing 8000 workers would leave them with poor competitive positioning compared to other firms that were willing to take advantage of technological advances and automate and shrink their workforce in that area.
Sometimes the advance of technology means that you need fewer people for the same job. Logging today for example is done primarily with machines. They have TV shows about it since what those machines do is pretty crazy. These machines now replace what previously teams of people working at sawmills did.
> companies rarely cut into executive staffing, pay or benefits the way they cut into labor.
Is this a bad thing? Why? Or why do you think it should be otherwise?
Executive staffing is always needed, at least to some extent. You need competent executives to oversee and implement whatever automation strategy Hostess subsequently employed. You need people to negotiate effective contracts with vendors who can provide the robotics and automation and whatever else is necessary, at a good price and on good time, and oversee the project to ensure it succeeds. All sorts of obstacles might come up which require high judgment, out-of-the-box thinking, social connections, etc. to solve. Or you might need the expertise to hire people to do this job in-house. You need the ability to source them, hire them, pitch them on joining the company, and to design an organization and support system that allows them to succeed. You might need to hire a ton of people and managers to replace people previously laid off. This is what executives do.
I'm not sure what you think was wrong with this situation. Hostess was held hostage by unions that inefficiently wanted to do with 8000 people what's now being done with 1200 people plus automation. Automation and technology are the way of the future; technology is the primary engine of economic growth. A company that's being held hostage by its unions against the maximally effective employment of technology is an ineffective, poorly performing company. That's what Hostess appears to have been under the unions.
Sometimes new innovation means that fewer jobs in a certain sector are needed than were before. Sometimes layoffs are necessary when that is so. Of course the bakers union is not going to be happy about bakers being replaced with robots. I'm not sure on what basis you're implying that it's ethically wrong, though. It's regrettable that people lost their jobs and livelihood. It's regrettable that those same people held a company hostage and ran it into the ground.
Why do you think executives at the new company should not be compensated? People who talk about executive pay at troubled companies rarely consider the perspective of an effective executive or company owner. If you're a leader with a good resume who has a track record of success, then you have opportunities at many companies in an industry. You don't need to work at a troubled company. The troubled company is likely to fail, and your reputation might be tarnished for being there, whether you had any responsibility for not.
A company just emerging from bankruptcy needs to hire executives to perform the functions I mentioned above. Imagine that you're an executive, and you could either work at name-brand car company which is doing just fine, and growing nicely, or you could accept a job at Hostess and try to turn it around. The job at Hostess is high risk. You're bailing out a sinking ship. Actually, that's a bad analogy - the ship has already sunk and you're dredging it up. If you manage to pull it off, then perhaps you've accomplished something amazing, and perhaps you rightly deserve amazing compensation for turning things around when others could not. Consider Marissa Mayer at Yahoo. Another executive might have decided, "You know what? Yahoo's end has come. I don't think I can turn it around, so I won't try".
Companies that are troubled cannot afford to stop paying executives well, because they are still competing for talent with other companies. Companies that are troubled and are in deep shit may need to pay executives more, to counterbalance the risk that the executives are taking from working there. And a company in these waters might pay its executives well in an attempt to retain them, since a company that's in deep water that also loses key executives is a company that's in danger of collapsing. It must be understood that executives have other job prospects too and will not remain working for a company with a poor ratio of compensation relative to risk.
(I don't really know anything about Hostess specifically. I am writing based on general principles of economics and competition.)