FEI Daily – The Push and Pull of Executive Bonuses and Bankruptcy

Nothing makes media headlines faster than jaw-dropping executive incentive payouts and/or retention bonuses paid prior to a company’s bankruptcy filing. Within this context, the impact of COVID-19 has been uneven across sectors and has contributed to poor performance across various industries. Some sectors, like retail, were already challenged; J.C. Penney, Neiman Marcus, J. Crew, and more teetered on the edge of solvency. With almost six months of the pandemic behind us, other casualties include airlines, hotels, car rentals, movie theatres, theme parks, and any other business that brings people together in crowds. Many companies are in survival mode. Some will live. Some will die. But prior to filing for bankruptcy, and as companies prepare to emerge from bankruptcy, there is an important consideration: the ultimate restoration of shareholder value. The retention of key executives is of paramount importance during this extraordinary period. But the real question is, what types of bonuses make sense prior to a bankruptcy filing, and how should companies manage the optics with stakeholders?

A recent Reuters analysis of securities filings and court records identified 32 of 45 companies that paid out bonuses in the six months prior to filing for bankruptcy, with nearly half making the payouts within two months. Several companies made large bonus payments, often while furloughing or laying off employees, before their bankruptcy filings.

by Dayna Harris

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About Dayna Harris

Partner, Farient Advisors, Los Angeles

Los Angeles: (626) 799-2490
dayna.harris@farient.com

Dayna has served as a consultant on executive and board compensation for two decades, designing incentive programs that align compensation with business strategy and create value for shareholders. Her experience includes advising boards and senior management of public and private companies across various industries. She works with management and boards to reach a consensus on program design that is effective within the context of a company’s organizational structure and situation.

Further, her incentive design work identifies the appropriate frameworks, performance measures, and approaches for goal setting. Before joining Farient, Dayna was a principal at Semler Brossy Consulting Group and held executive compensation consulting roles at Sibson & Company, SCA Consulting, and Mercer.

She frequently speaks on topics including pay and performance, disclosure, and regulatory compliance for the National Association of Corporate Directors (NACD), WorldatWork, the National Association of Stock Plan Professionals (NASPP), the Council of Institutional Investors, and the Society of Corporate Governance Professionals. Dayna is a member of WorldatWork, NASPP, the Council of Institutional Investors, and NACD. For three years, Dayna was named to the NACD Directorship 100, the prestigious annual list of the most influential people in corporate governance and the boardroom. She holds both an MBA and a bachelor’s degree from San Diego State University.

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