A hearing on the request by the bankrupt Borders bookstore chain to institute an $8.3 million bonus plan for 17 executives, 25 “director-level” employees and additional key personnel will receive a hearing in Federal bankruptcy court on Thursday, April 14th. The Office of the U.S. Trustee, the Justice Department agency that oversees the administration of bankruptcy cases has filed an objection to the plan. Reuters reports that the U.S. trustee, Tracy Hope Davis, characterized the bonus plan as “a disguised retention plan for insiders…Seeking the approval of the bonus motion at this early juncture, prior to the debtors finalizing their business operational plans is not a sound exercise of the debtors’ business judgment.”
The Wall St. Journal reported that, for Borders’ highest level executives, the bonuses would equal extra pay amounting to between 90% and 150% of their base compensation. CEO Mike Edwards, who earns $750,000, would get an even bigger payout according to the WSJ, which tagged his bonus at $1.7 million.
Borders defended the plan by pointing out that the bonuses are going to the management team that is attempting to salvage the company, not the one that steered it on to the financial rocks, and that the bonuses would only be paid if the company avoids liquidation and emerges from Chapter 11 as a viable concern. In a filing quoted by Publishers Weekly, Borders indicated that the company expects annual post bankruptcy sales of about $1.5 billion, which would put the bonuses at about .56% of sales, which is only slightly above the .47% average for companies that have undergone similar bankruptcy proceedings. According to Borders 70% of the bonus recipients have been with the company for fewer than 17 months, and the bonuses are necessary to keep them on board.
As might be expected some of Borders creditors are livid about the proposed bonuses, but not all are. The Wall Street Journal quoted one of Borders’ unsecured creditors, who took a philosophical approach: “It irks me because the money is not going to pay creditors, but I want to see Borders come out of this. If they don’t have these guys, I don’t see a chance.”
