Bankrupt Hertz Sets Up Another Round of Executive Bonuses
August 28 2020 - 4:45PM
Dow Jones News
By Peg Brickley
Hertz Global Holdings Inc. wants to hand out a further $14.6
million in bonuses to executives, months after the car-rental
company shelled out $16.2 million in extra pay meant to keep
executives from leaving as the Covid-19 pandemic upended the travel
industry.
Hertz filed for chapter 11 protection in May, its business
shredded by pandemic-related restrictions.
Before filing for bankruptcy, Hertz laid off thousands of
employees and handed out retention bonuses to key leaders. The move
was part of a trend in corporate bankruptcy, where distressed
companies hand out retention bonuses, or "stay pay," just before
they file for bankruptcy protection. Retention payments are almost
impossible for top executives to get after a company files for
bankruptcy.
Chief Financial Officer Jamere Jackson resigned this month and
forfeited his retention bonus.
Hertz is sealing much of the information about which employees
are in line for the latest round of bonuses.
The judge overseeing Hertz's bankruptcy would need to sign off
on the new round of pay enhancements, which the company detailed in
court papers filed Thursday. They are styled as "incentive"
bonuses, which are supposed to drive performance.
If it succeeds, Hertz's second bonus round could drive Chief
Executive Paul Stone's extra pay to $2 million in less than a year,
as he leads a company that has no clear path to survival. Mr. Stone
took the job and a $700,000 "retention bonus" in May. Assuming the
CEO is the executive in line for the highest incentive award, $1.26
million, Mr. Stone could have a lucrative first year on the job.
His annual base salary is $1 million.
Hundreds of key employees could be paid under the incentive
plans, including senior management. For executives further down the
ladder, bonuses are in the range of $10,000 to $15,000, court
papers say.
Fifteen years ago, Congress responded to public outrage over
bonuses for top executives of companies that went bankrupt and
wiped out thousands of jobs. "Retention" bonuses were banned,
unless an executive could show he or she had a better job offer and
would leave.
To get around the ban on stay pay, bankruptcy lawyers began
crafting incentive programs, selling judges on the idea that the
law didn't prevent companies from rewarding executives for hitting
performance targets.
These have been routinely approved, often over the protests of
federal bankruptcy watchdogs who argued they were merely disguised
retention bonuses and shouldn't have been allowed.
So far this year, various companies filing for bankruptcy amid
the coronavirus pandemic have paid out bonuses. The CEOs of Hertz,
GNC Holdings Inc., Ascena Retail Group Inc., Tailored Brands Inc.,
J.C. Penney Co., Neiman Marcus Group Ltd. and other companies have
received such pay shortly before their employers filed for
bankruptcy.
Such moves were rare until recently.
"I think there was some reluctance to pay pre-bankruptcy
retention bonuses as unseemly, but once the line was crossed, the
behavior became somewhat normalized," said Adam Levitin, a
Georgetown University law professor.
There was no need to seek a bankruptcy judge's permission,
because the judge has no jurisdiction until a petition is
filed.
Hertz's pre-bankruptcy retention bonuses could be subject to
clawback actions by junior creditors.
Write to Peg Brickley at peg.brickley@wsj.com
(END) Dow Jones Newswires
August 28, 2020 16:30 ET (20:30 GMT)
Copyright (c) 2020 Dow Jones & Company, Inc.
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