American Firms Shower Executives with Big Bonuses Ahead of Bankruptcy Filing

WASHINGTON, KOMPAS.com – Around one-third of more than 40 large American firms seeking US bankruptcy protection showered their executives with big bonuses.

Although the coronavirus pandemic has dealt a massive blow to several American firms, some of these enterprises awarded bonuses to their executives within a month of filing their cases.

This was based on a Reuters analysis of securities filings and court records.

A 2005 bankruptcy law in the US bans companies, with few exceptions, from paying executives retention bonuses while in bankruptcy.

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The firms, however, took advantage of a loophole by granting payouts before filing bankruptcy.

Six approved bonuses a month prior to bankruptcy filings.

These American firms cited business challenges their executives faced during the coronavirus pandemic to justify the compensations.

Even more firms paid bonuses in the half-year period before their bankruptcies.

Thirty-two of the 45 companies Reuters examined approved or paid bonuses within six months of filing. Nearly half authorized payouts within two months.

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Eight companies, including J.C. Penney Co Inc and Hertz Global Holdings Inc, approved bonuses as few as five days before seeking bankruptcy protection.

Hi-Crush Inc, a supplier of sand for oil-and-gas fracking, paid executive bonuses two days before its July 12 filing.

J.C. Penney - forced to temporarily close its 846 department stores and furlough about 78,000 of its 85,000 employees as the pandemic spread - approved nearly $10 million in payouts just before its May 15 filing.

On Wednesday, the company said it would permanently close 152 stores and lay off 1,000 employees.

The company declined to comment for this story but said in an earlier statement that the bonuses aimed to retain a “talented management team” that had made progress on a turnaround before the pandemic.

The other companies declined to comment or did not respond.

In filings, many said economic turmoil had rendered traditional compensation plans obsolete or that executives getting bonuses had forfeited other compensation.

Luxury retailer Neiman Marcus Group in March temporarily closed all of its 67 stores and in April furloughed more than 11,000 employees.

The company paid $4 million in bonuses to Chairman and Chief Executive Geoffroy van Raemdonck in February and more than $4 million to other executives in the weeks before its May 7 bankruptcy filing, court records show.

Neiman Marcus drew scrutiny this week on a plan it proposed after filing for bankruptcy to pay additional bonuses to executives. The company declined to comment.

Hertz - which recently terminated more than 14,000 workers - paid senior executives bonuses of $1.5 million days before its May 22 bankruptcy, in part to recognize the uncertainty they faced from the pandemic’s impact on travel, the company said in a filing.