By Peg Brickley, Becky Yerak and Nina Trentmann
A group of retired Hertz Global Holdings Inc. executives is
criticizing the car-rental company's plan to pay millions in
additional bonuses to top managers who laid off thousands of
employees and oversaw the business as it filed for bankruptcy.
At least seven retired Hertz executives are objecting to the new
round of bonuses, totaling $14.6 million, saying the company's
promises to provide them with a secure retirement are being cast
aside. The retiree group includes a former general counsel and
marketing and regional vice presidents.
Hertz is labeling the new bonuses incentive pay. They are slated
to come on top of $16.2 million in retention bonuses the company
paid out to top executives days before it filed for bankruptcy in
The move has sparked a debate between creditors that back the
bonuses, including a committee that includes the International
Brotherhood of Teamsters, and a federal bankruptcy watchdog, who
says the second round of bonuses is essentially just more pay to
get executives to hang around. Once they are in bankruptcy,
companies are prohibited by law from handing out "stay pay."
Complicating the issue, Hertz is struggling through a
restructuring that has no clear path to the exit.
The car-rental giant was part of a wave of troubled businesses
to hand out stay pay to top executives shortly before filing for
bankruptcy. Others included J.C. Penney Co., Neiman Marcus Group
Ltd. and GNC Holdings Inc. All, like Hertz, pointed to industry
devastation from the Covid-19 pandemic as the prime reason for
their financial problems.
The retention bonuses marked a change in traditional corporate
bankruptcies and an end-run around laws enacted by Congress.
Reacting to the public outcry over bankruptcy bonuses that enriched
top executives while thousands of people lost jobs, Congress 15
years ago made it almost impossible for bankrupt companies to pay
executives extra just for sticking around.
But since the coronavirus outbreak, executives have been cashing
in before bankruptcy. By timing the payments before a filing,
management doesn't need a judge's permission to hand out extra
money. That's what Hertz and other companies did, arguing they
needed steady hands at the helm for the unprecedented times
There is a risk. Unhappy creditors could move to claw back the
pre-bankruptcy bonuses, on the grounds it was money spent by
companies that were already deeply in debt. But for the most part,
that hasn't happened.
For Jamere Jackson, Hertz's former chief financial officer, the
money wasn't enough to make him stay. Mr. Jackson resigned in
August after about two years in the role, forfeiting his $600,000
I did [leave the retention bonus on the table]," Mr. Jackson
said in an interview, adding that the extra pay was "never an
issue" for him. "At this point, money is a bit less of a
motivation. That is very different to where I was earlier in my
Mr. Jackson is set to become finance chief at AutoZone Inc., a
Memphis, Tenn.-based retailer of automotive parts. He isn't part of
the group of retired executives criticizing the Hertz bonuses.
U.S. Trustee Andrew Vara, who monitors the Delaware bankruptcy
court that must rule on Hertz's second round of bonuses, said the
company's top executives are reneging on a deal they made to get
their stay pay before bankruptcy. The U.S. Trustee Program, part of
the Justice Department, enforces federal bankruptcy law.
The executives signed agreements waiving their rights to 2020
performance bonuses as a condition of collecting the retention
bonuses. Now they are trying to revive the performance-bonus
program, with targets set at much lower levels, Mr. Vara said in a
The group of former Hertz executives says the company's new
bonus program threatens their retirement packages.
In a filing in the U.S. Bankruptcy Court in Wilmington, Del.,
the group criticized the company for "the loss of promised deferred
compensation in the form of retirement benefits in the face of the
significant sums" paid out before bankruptcy.
Hertz's unsecured creditors committee, however, supports the
second round of bonuses, a conclusion it said it reached after
meeting with the company, doing its own due diligence and analyzing
the financial impact of the incentive plans on the business. The
nine-member group includes the Teamsters union, the federal Pension
Benefit Guaranty Corp. and Sirius XM Radio Inc.
In the years after Congress stopped bankrupt companies from
paying out retention bonuses, lawyers found a way around the rules,
arguing that executives needed incentives to get them to hit
targets such as earnings goals. They sold judges on key employee
incentive plans, or KEIPs, which Congress didn't bar.
Hertz's proposed new bonus round is based on targets that,
according to the U.S. Trustee, are unclear. "These are retention,
not incentive, plans," lawyers for Mr. Vara wrote in a court filing
--Nora Naughton contributed to this article.
Write to Peg Brickley at firstname.lastname@example.org, Becky Yerak at
email@example.com and Nina Trentmann at
(END) Dow Jones Newswires
September 11, 2020 17:51 ET (21:51 GMT)
Copyright (c) 2020 Dow Jones & Company, Inc.
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