“In fact, the metrics imposed are indeed tall orders and serious challenges,” Jones said. “They will require the senior executive team to not only work hard, which I have no doubt they’re doing, but also work extremely effectively, probably creatively, and in ways I don’t even know.”
Bankruptcy bonuses are commonly ladled out by ailing companies to top management shortly before or soon after filing for Chapter 11 protection. In 2005 Congress amended the bankruptcy code and aimed to rein in “retention bonuses” doled out to executives simply for staying on the job. Companies responded by labeling payouts as “incentive bonuses” and tied them to financial goals that could benefit the reorganization.
But critics say the goals are typically easy to meet and amount to backdoor executive payout schemes at companies scrambling for every dollar.
Nonetheless, judges typically approve bankruptcy bonuses because they feel doing so will maximize value going forward, even if the bonus recipients are the same people who led the company into Chapter 11.
“It is a tricky thing to explain how and why you need your senior management team to stick around,” acknowledged Jones, who drew comfort from the fact all of Revlon’s creditors support its bankruptcy bonus plan.
At Wednesday’s hearing, lawyers spent a lot of time arguing over whether the bonuses proposed by Revlon are primarily retentive or incentivizing.
“How to determine what is primarily retentive versus primarily incentivizing is a slippery task,” Jones said during a discussion with a Justice Department representative. “Do you have a magic articulation?”
“Unfortunately, Your Honor,” the official said, “I don’t.”
