Companies across the US are awarding top executives multimillion-dollar “retention” bonuses shortly before declaring bankruptcy, angering creditors who claim the payments are rewards for failure, the Financial Times reported. The practice has become commonplace among distressed companies pushed over the edge by the coronavirus pandemic. The list includes high-profile collapses such as JC Penney, Hertz and Neiman Marcus; companies squeezed by the energy downturn such as Whiting Petroleum; and smaller groups where revenues have been hit by the health crisis, such as century-old lawnmower engine maker Briggs & Stratton. In most cases, the payments are tied to senior managers remaining in their roles while the company goes through a reorganisation. Supporters of the practice say it limits disruption for groups already facing a tumultuous future, and argue that retaining top talent is critical to a successful turnaround. But creditors have struck back, particularly at companies that have rewarded managers who presided over slumps in their businesses. Often, retention payments are granted weeks — or even days — before groups lay off workers and refuse to pay interest to lenders. Retention awards in the run-up to bankruptcy have become more prevalent in recent years, following a 2005 law that restricted the payment of bonuses when a company is actually in bankruptcy proceedings. Critics of pre-filing awards say they flout the spirit of that law, which was intended to curb payouts to executives when a company is in distress.
