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 May.

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 ahead.

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 retention bonus.

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 career."

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 court filing.

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 Thursday.

--Nora Naughton contributed to this article.

Write to Peg Brickley at peg.brickley@wsj.com, Becky Yerak at becky.yerak@wsj.com and Nina Trentmann at Nina.Trentmann@wsj.com

 

(END) Dow Jones Newswires

September 11, 2020 17:51 ET (21:51 GMT)

Copyright (c) 2020 Dow Jones & Company, Inc.
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