It's bad when steve gets upset. When steve gets upset, it's worth taking a little time to find out if things are as bad as they seem.
While I would argue that people ought to be able to use thier money as they please, I am disappointed at the idea that anyone would choose to direct money toward already wealthy people and not toward comparatively less wealthy people. An executive bonus seems unseemly while laying off staff.
Mr. Reich provides his source from Reuters:
On eve of bankruptcy, U.S. firms shower execs with bonuses
Under a 2005 bankruptcy law, companies are banned, with few exceptions, from paying executives retention bonuses while in bankruptcy. But the firms seized on a loophole by granting payouts before filing.
That's not really a loophole. The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 PDF added a "limitation on retention bonuses, severance pay, and certain other payments" to Chapter 11 for firms that had already filed for bankruptcy. Corporations are free to hand out bonuses and severance pay to employees before filing, but not after.
J.C. Penney is the first corporation mentioned by Reuters, presumably the most egregious example.
J.C. Penney - forced to temporarily close its 846 department stores and furlough about 78,000 of its 85,000 employees as the pandemic spread - approved nearly $10 million in payouts just before its May 15 filing. On Wednesday, the company said it would permanently close 152 stores and lay off 1,000 employees.
The company news release indicates that they provided some severance benefits to former employees.
JCPenney is providing a comprehensive benefits package for its departing associates, including severance for eligible associates, healthcare coverage through COBRA for those enrolled in benefits, outplacement support, compensation for unused paid time off, and extended associate discount benefits.
Without numbers, it's hard to know how valuable these benefits are, and whether they apply to furloughed employees who don't come back or just those being laid off now.
It's hard times for mall retail; the future was not bright for J.C. Penney before the pandemic arrived. After an all time high of $80 in 2007, Penney became a penny stock in January, trading below a dollar.
But still, if money is so tight, why the executive bonus?
The SEC filing explains in two paragraphs.
• A "2019 Long-Term Incentive Plan" promised an executive bonus to be paid after the end of fiscal 2021, based on goals set for 2019, 2020 and 2021. The 2019 portion of the promised bonus is being paid now ($2.4 million in total), and the 2020 and 2021 bonuses are cancelled. The 2019 bonus must be returned to the company if the executive quits before January 31, 2022.
• A "Pre-Paid Compensation Plan" bonus is paid immediately ($4.5M for CEO Jill Soltau and a million each for three VPs). If any of them is fired or quits before January 31, 2021, they must return 80% of the bonus, and the other 20% is conditional on meeting performance targets.
It's bad for everyone at the company if executives lose hope and quit. At this point it's far from certain that the company will even exist in in 2021, so the board has to give the execs a reason to stick around. The law forbids the board from creating retention bonus incentives after declaring bankruptcy, so they had to use the "loophole" and do so before filing.
What happens to bonus money that an executive forfeits by quitting or failing to meet a performance target?
To the extent any participating officer repays all or any portion of the milestone-based portion of his or her PCP award, the Company will segregate such repaid funds to be used for the sole purpose of paying severance to employees who were not granted PCP awards and who incur a qualifying termination of employment.
The executives have to earn it, but former employees get free handouts? Harsh capitalism for the rich, socialism for everyone else!
There is a lot of wiggle room in the fine print, but it seems to me that the board is in a very difficult situation, trying to do what is best for the entire company, including regular employees. The creditors are not happy; $10 million is peanuts compared to $3.72 billion the company holds in long-term debt. A bankruptcy court judge approved a last-minute deal before a July 15 "toggle" event would have sent the company into liquidation.
“In a perfect world, this financing package would be highly objectionable,” Jones said. “There’s a lot I don’t like, but I recognize that this investment may not be in a black hole. It’s a murky hole.”