The coronavirus recession is pushing many companies into bankruptcy, a painful process that has led to layoffs, wiped out some investors and hurt the economy. But the chief executives of some of these businesses are doing just fine, according to a New York Times analysis. Companies that are struggling to pay creditors and suppliers are managing to find millions of dollars to pay bonuses to their bosses. The payments, which are made just before a bankruptcy filing, appear to be legal and have been made by several companies. J.C. Penney, which is closing 154 stores, paid its chief executive, Jill Soltau, $4.5 million. The chief executive of Whiting Petroleum, which sought bankruptcy protection in April, received $6.4 million, and Chesapeake Energy is paying bonuses ahead of an expected bankruptcy filing. Executives at Hertz also got payments before the rental-car giant sought bankruptcy protection. Companies have said that the payments are meant to help them retain qualified executives through the recession and bankruptcy. This is not the first time that executive pay at troubled companies has prompted an outcry. The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 aimed to curb retention bonuses paid during bankruptcy. Under the law, companies are allowed to pay incentive-based bonuses, but the legal cost of constructing such payments and getting them approved in bankruptcy court soared after 2005, according to research by Jared Ellias, a professor at the University of California’s Hastings College of the Law. Of course, Congress could change bankruptcy law so that compensation payments made before the filing could be clawed back, Ellias said. In addition, lawmakers could make it easier for creditors to pursue claims against executives after the bankruptcy. Read more.
In related news, Ascena Retail Group Inc., the distressed parent company of Ann Taylor and Lane Bryant, plans to pay about $5.5 million in cash retention and incentive awards to three executives, becoming the latest struggling company to hand out bonuses to top management, the Wall Street Journal reported. The incentives come after Ascena warned last month that it was evaluating all options as the coronavirus pandemic has significantly disrupted its business, resulting in reduced earnings and cash flow, as well as higher levels of debt and deferred liabilities. The company disclosed Monday it has agreed to pay nearly $2.14 million in bonuses to Chief Executive Gary Muto and to Carrie Teffner, interim executive chair of the board. Executive Vice President and Chief Financial Officer Dan Lamadrid will get about $1.21 million, according to a regulatory filing. The CEO will also receive more than $1 million in performance-based payments for fiscal 2018 and fiscal 2019. The finance chief will receive $83,650 for those two years, the filing shows. Read more.
