Before the bankruptcies came the bonuses: $10 million at J.C. Penney Co., $25 million at Chesapeake Energy Corp., $1.5 million at Hertz Global Holdings Inc.
That’s how much was promised to executives only weeks or in some cases days before bankruptcy. Of the 100 or so major companies that have filed since the coronavirus shutdown began, 19 of them have committed to paying a total of $131 million in retention and performance bonuses, both before and after filing, a number that’s poised to climb as a record number of Americans are jobless and the pandemic spreads.
The companies say they need to keep their management teams to help turnaround consultants repair the damage, even when it means rewarding people who were in charge when the business began sinking. The timing of some of the bonuses, before the filing, legally heads off opposition from creditors, who can’t block such payouts unless they’re made after a case reaches court.
The practice isn’t new, but the context is unprecedented. The economy is in a tailspin, and while thousands more Americans stand to lose their jobs in J.C. Penney’s bankruptcy, the $4.5 million going to Chief Executive Officer Jill Soltau, who in fairness took over in 2018, when the company was already decades in decline, is pretty much a done deal, as are other payouts.
On May 19, Hertz, the rental-car company devastated by the pandemic-related clampdown on travel, handed out $1.5 million to three top executives as part of $16.2 million in retention bonuses. Three days later, it filed for bankruptcy. The company said in April that it had cut 10,000 jobs in North America. Hertz didn’t respond to requests for comment.
Frontier Communications Corp., the telecom hurt by customers’ rejection of land lines, approved bonuses in February and filed in April. Frontier declined to comment.
Chesapeake also didn’t wait to file to before it made retention payouts to management, including CEO Doug Lawler, who’s been leading the shale driller since 2013. Chesapeake said in May that it intended to pay $25 million in bonuses to 21 executives while also requiring some of them to take salary cuts. The company sought bankruptcy protection in late June. Chesapeake declined to comment.
Small-engine manufacturer Briggs & Stratton Corp. and Ascena Retail Group Inc., owner of women’s-wear chains Ann Taylor and Lane Bryant, weren’t in bankruptcy when they made sure to secure the services of their management teams.