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Delphi recently filed a court request to pay up to $37.6 million for hundreds of executives, while a grocery store chain hits a snag in getting the OK to give its CEO and CFO extra pay.
Sarah Johnson, CFO.com | US
September 13, 2007
Later this month, a bankruptcy court will consider whether 442 executives of Delphi Corp. should receive bonuses for their work during the second half of 2007 at the bankrupt company. If approved, the request would provide a payout of up to $37.6 million.
Delphi, which is in the midst of reorganizing, has asked that its annual incentive plan be extended for six months, during the period between July 1 and December 31, 2007. The performance-based compensation hinges on whether the executives meet certain individual and corporate financial goals during this time. The company's attorneys argue in their request filed late last week that the bonuses give the executives incentives to reach those goals. The goals call for the company to reach $443.1 million in pretax income or for its business units to reach certain financial marks.
Delphi has made similar requests in the past and the bankruptcy court has given it the go-ahead to provide the extra pay to top executives.
But executives at another bankrupt company may not be so lucky if the judge's reluctance to make a decision is any indication.
In that case, two executives at Nutritional Sourcing Corp. are waiting to hear whether they'll receive bonuses under revised employment agreements signed three days before the grocery-store holding company went bankrupt in August, according to the Associated Press. Earlier this week, U.S. Bankruptcy Judge Peter Walsh said the company's rank-and-file employees in Florida could receive up to $1.5 million in bonuses, but delayed his decision on whether CEO William Keon and CFO Daniel O'Leary could also receive extra pay. He has put off issuing an opinion until September 24 because of accusations raised by federal officials about the timing of the bonus agreements, according to the AP.
The Pompano, Florida-based company, which operates grocery stores and owns video store leases in Puerto Rico and the U.S. Virgin Islands, filed for Chapter 11 protection on August. 3. The AP notes that recent changes to bankruptcy laws restrict bankruptcy bonuses and severance pay for insiders. Keon, O'Leary, and general counsel Jose Nieto, who signed a new employment agreement nearly three months before the bankruptcy filing, qualify as insiders. Attorneys in the U.S. Trustee's Office claim that the executives are trying to use Delaware's "business judgment" standard which encourages the courts to trust the decisions of corporations. "The timing of the insider employment agreements is more suggestive of unconscionable self-dealing by insiders than of a valid exercise of business judgment," wrote Mark Kenney, one of the attorneys, according to the AP.