Bonuses and bankruptcy are proving to be strange bedfellows in retail.
Neiman Marcus is seeking court approval to shower key executives with millions in bonuses, prompting a Department of Justice (DOJ) attorney to contest the request. The debt-laden luxury chain, which filed a Chapter 11 petition in May, wants to dole out up to $10 million for top brass, including as much as $6 million for CEO Geoffroy van Raemdonck. Chief merchandising officer Svetlana Todorovich and chief operating officer Chris Sim are also on the bonus list. Meanwhile, the Texas-based company has up to $8.7 million earmarked for senior managers holding titles at the director, vice president and senior vice president levels.
The DOJ lawyer, who argued the planned payouts are illegal under federal bankruptcy law, is pressing Neiman for proof that these executives have helped the struggling company achieve specific performance goals. Neiman maintains it’s on track to meet outlined financial targets and emerge from bankruptcy proceedings in September.
Neiman’s planned bonus bonanza has landed the company in court simply because it filed for bankruptcy before it was able to issue these awards. But it’s far from the first instance of a cratering retail chain or household brand name handing over millions to high-level execs while on the verge of collapsing into bankruptcy.
Fellow bankrupt retailer J. C. Penney rushed $7.5 million in performance awards to high-ranking employees just days before its May 15 Chapter 11 petition. Originally set to be released after January 2022, Penney’s sped up the payouts in a bid to incentivize leaders to stay on and guide the company through the rough waters ahead.
Ascena Retail Group, the troubled Ann Taylor and Lane Braynt owner that’s widely expected to file a bankruptcy petition, also plans to shell out $5.5 million to three executives as part of a cash retention and incentive awards program. The company hasn’t yet filed a Chapter 11 petition, but is said to have been in contact with advisors about that possibility. Car rental giant Hertz Global Holdings and tableware manufacturer Libby Inc. both made similar payouts just prior to their respective Chapter 11 filings.
The optics of million-dollar payouts at a time when companies’ bottom lines are bottoming out and many are laying off hundreds or thousands of rank-and-file workers is bound to become even more controversial in the weeks and months ahead, particularly as the economic recovery stalls in a coronavirus-ravaged reality.
Though Macy’s isn’t linked to any bankruptcy speculation, its decision to part with $9 million in equity awards just before slashing 4,000 corporate jobs is sure to draw unwelcome scrutiny. And after enduring months of store closures, more layoffs could lie ahead if Macy’s must further downsize its brick-and-mortar base.
In addition to $3.7 million in restricted stock for CEO Jeff Gennette, Macy’s handed over between $350,000 and $3 million in awards to other top executives. While bonuses are a routine component of corporate compensation and operations, that fact will do little to quell any resentment that laid-off employees harbor against well-paid executives greenlighting job cuts for staff with limited re-employment options, while lining their own already well-padded pockets.
The outsize disruption of the coronavirus pandemic has thrust corporate governance, and what defines responsible corporate behavior, into the spotlight. Though executive pay is just one component of good corporate governance, at bare minimum compensation should to be tied to shareholder returns. But just exactly what determines the right pay structure—and how much is too much—can be difficult to measure or even define. That’s especially true in the current low-growth recessionary environment that could deepen in the months and even years ahead.