It’s not exactly clear what the lawyers of bankrupt Hertz were thinking but the first time the company spent a whopping $16.2 million on corporate retention bonuses just one day after it announced it would lay off 10,000 US workers and just days after it filed for Chapter 11, it made front page news.
Perhaps they were simply hoping that the bankruptcy judge overseeing the Chapter 11 case has a short memory or is senile, but whatever the reason when they requested that the management team of Hertz – which landed the iconic company into bankruptcy court for the first time in its 102 year history – be paid another $5.2 million in incentive-linked bonuses, the judge had had enough.
Judge Mary Walrath slammed the application for another bonus program, saying it comes too soon – less than 4 months to be exact – after the $16.2 million in retention money Hertz agreed to hand out to about 340 employees just days before it filed for bankruptcy in May. Walrath’s order also denied a new plan that would have split as much as $9.2 million among about 295 lower-ranking managers.
“It seems offensive to give senior executives bonuses” when some of them got retention payments immediately before Hertz headed for court, Walrath said in a Thursday telephonic hearing according to Bloomberg, which adds that under the pre-bankruptcy retention plan, CEO Paul Stone received $700,000. With the new plan, Stone could have collected as much as $1.6 million.
Typically Bankruptcy Code restricts bonus payments to top executives, in part by requiring them to be tied to performance goals. And while retention payments are allowed, but have tighter restrictions that make them harder to justify. All of this appears to have been lost on Hertz’ law firm White & Case, perhaps best known for trying to quietly sell $1 billion in stock to gullible Robinhood traders in early June when the company’s stock inexplicably soared, in lieu of arranging a DIP (luckily, that plan also ended up getting nixed). So it was perhaps for the benefit of White & Case’s lawyer when Walrath explained that Congress wrote the rules to ensure managers who drove a company into bankruptcy were not rewarded for staying around during a Chapter 11 case.
Of course, Hertz’ management has already received some $16 million in bonuses. They were now coming back for another round.
“More has to be done to show why employees who got retention bonuses and agreed to stay with the company are not going to do their best to see that the company survives and succeeds,” Walrath said for the benefit of greedy but incompetent management teams everywhere.
According to Bloomberg, as part of the original deal, employees agreed to forgo their 2020 bonuses. The new bonuses “are in reality the 2020 bonuses under a different name,” the U.S. Trustee has said.
Ironically, White & Case was hoping that this bait & switch would pass by unnoticed, and as Hertz bankruptcy attorney Jason Zakia said during the hearing, a “relatively large percentage” of the employees who would be eligible for the new bonus program also got retention bonuses. In short: reward management for destroying billions in shareholder value… and then reward them some more.