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Pre-Bankruptcy Bonus Trend Has Tailored Shelling Out $3.3M: The Week Ahead

Distressed men’s apparel retailer Tailored Brands Inc. joins the growing list of companies paying its top executives nearly $3.3 million in incentives to stay on just ahead of an expected Chapter 11 filing for bankruptcy court protection.

In a regulatory filing with the Securities and Exchange Commission on Friday, the men’s wear retailer said the company implemented a new incentive compensation program on July 24, replacing the existing one. The company said participants in the program will have the “opportunity to “earn a fixed dollar amount based on specified employment-related and performance incentive-related conditions.”

Under the new program, president and CEO Dinesh Lathi has a target incentive compensation of nearly $1.8 million, while chief customer officer Carrie Ask has a target incentive of $712,500. Two other participants are executive vice president and chief technology officer Boris Sherman at $425,000 and executive vice president, general counsel and chief compliance officer Alexander Rhodes at $371,250.

The filing said, with the exception of Lathi, the amounts represent “50% of such executive’s planned target incentive compensation (target bonus plus target long term incentive grant) for the Company’s 2020 fiscal year.” In the case of Lathi, the amount came in at 27 percent for the same period.

The payment programs can fall under a rubric of names ranging from cash retention bonuses to incentive awards programs, part of a compensation package meant for payouts when an executive hits certain targets to reward meeting those goals.

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However they are classified, they seem to be increasing this year as more struggling firms are promising the payouts despite an economic backdrop of the coronavirus pandemic that has seen weekly retail layoffs and bankruptcy filings. The payments are sure to raise questions about responsible corporate behavior.

J.C. Penney Co. Inc. has also been part of the recent trend, rushing a $7.5 million performance awards plan to top executives just days before its May 15 bankruptcy filing. And Ascena Retail Group, owner of Ann Taylor and the Lane Bryant brands, shelled out $5.5 million to three executives before its Chapter 11 filing.

On Monday, Tailored Brands told the SEC it would likely be forced to reorganize under bankruptcy law “as soon as during the third quarter of fiscal year 2020.” Tailored’s third quarter begins on Sunday, and it’s already missed one interest payment, raising the concern a few weeks ago that it was already moving closer to a bankruptcy filing.

Another retailer that recently paid out a cash retention award was women’s specialty chain J.Jill, which agreed to pay chief financial officer Mark Webb an award equal to his annual base salary and annual target bonus totaling  $875,385, according to a Tuesday Securities and Exchange Commission filing. He’s required to repay the funds if he leaves the company before July 30, 2021, barring a qualifying termination. J.Jill has had multiple extensions on two forbearance agreements with its ABL and term loan lenders, the most recent extension running through Aug. 6. The speculation is that J.Jill may also need to file for bankruptcy if it can’t find some agreeable resolution with lenders on its capital structure.

Companies effecting these plans ahead of an anticipated bankruptcy have one advantage for doing it now—they don’t have to worry about obtaining the approval of a bankruptcy judge for the payouts, or a fight with either creditors or a trustee about whether the payments are necessary.

That was the case in the Neiman Marcus bankruptcy, which saw a U.S. Trustee in the case complain about the luxury retailer’s request for court approval to pay up to $10 million in bonuses to three top executives, its CEO, chief merchant and chief operating officer. Neiman on Thursday prevailed in its request, but it was still another battle to be fought among many for the bankrupt firm.