By Jacqueline Palank 

CHICAGO--A bankruptcy judge Wednesday signed off on $7.5 million in bonuses for Edison Mission Energy employees as they work to close a $2.6 billion sale of the company to NRG Energy Inc. (NRG).

Judge Jacqueline Cox of the U.S. Bankruptcy Court in Chicago on Wednesday approved the bonuses, overruling an objection from a government bankruptcy watchdog that the bulk of the payments were illegal retention payments for high-ranking employees.

Judge Cox found that the $6.4 million in proposed bonuses for so-called company insiders, a designation that can include officers, aren't illegal retention payments but are instead proper incentives, payable only if the employees achieve certain goals in connection with the NRG sale.

"This is an incentive-for-performance plan," the judge said. "The purpose is to increase stakeholder value."

The bankruptcy watchdog, U.S. Trustee Patrick Layng, didn't object to a separate bonus plan that would offer up to $1.1 million in retention payments to about 20 non-insider employees. Judge Cox approved those bonuses, as well as Edison Mission's request to keep the identity of the employees under wraps.

Edison Mission's attorneys say the bonuses are crucial to motivate its employees to work hard, during a time of great uncertainty, on closing a deal that's best for the company and its creditors, even if in doing so they work themselves out of a job. Joining the company in support of the bonuses were many of its bondholders as well as the committee representing its unsecured creditors.

The U.S. trustee's attorney, Kathryn Gleason, argued Wednesday that the criteria for determining whether company insiders can share in up to $6.4 million in bonuses are too vague and subjective, making the bonuses disguised retention payments.

Ms. Gleason also said creditor support for the bonuses doesn't override the Bankruptcy Code's general prohibition against retention payments for high-level employees, which Congress passed to combat the perception that executives were abusing the bankruptcy process to pay themselves high bonuses and obtain golden parachutes.

Frederic Brace, one of two independent Edison Mission directors responsible for awarding bonuses, testified that insider employees will only be rewarded for "extraordinary" contributions to the closing of the NRG sale or a superior offer.

"We're not going to pay people for just sitting around and surfing the Internet while they wait for the transaction to close," he said.

NRG has offered to pay $2.285 billion in cash and $350 million in stock to acquire Edison Mission out of bankruptcy in a deal Edison Mission hopes to close next year. The deal is subject to regulatory and bankruptcy-court approval, as well as a go-shop period during which Edison Mission will seek higher and better offers.

If such an offer is found, Judge Cox has authorized Edison Mission to pay NRG a $65 million breakup fee.

Edison Mission, a unit of Edison International (EIX), generates energy at about 40 coal, wind and gas facilities in 12 states. It sought Chapter 11 protection last December.

(Dow Jones Daily Bankruptcy Review covers news about distressed companies and those under bankruptcy protection. Go to

Write to Jacqueline Palank at

Subscribe to WSJ:

Edison (NYSE:EIX)
Historical Stock Chart
From Aug 2023 to Sep 2023 Click Here for more Edison Charts.
Edison (NYSE:EIX)
Historical Stock Chart
From Sep 2022 to Sep 2023 Click Here for more Edison Charts.