Bankruptcy Judge Approves Toys R Us Controversial Bonus Plan

According to CNBC, Toys R Us won approval from a bankruptcy judge to pay out up to $21M in bonuses to top executives at the company.

U.S. Trustee, a government bankruptcy watchdog group, had opposed the move, on grounds that would seem obvious to most observers. Paying $21M in bonuses to executives that head a bankrupt company is counter to common logic. Initially, many of Toys R Us's creditors/vendors agreed, and also opposed the proposal.

The initial proposal, as had been reported, was for $16M to be paid out to the top 17 executives at the company. Judge Keith Phillips, after considering the request, approved a version of the proposal that had notably gained the approval from creditors who were initially opposed.

As per CNBC:

17 eligible executives would split about $21 million if earnings before interest, depreciation and amortization* for this fiscal year reach $641 million. Executives would split about $14 million if earnings reach $550 million. The terms were revised after a complaint from unsecured creditors, who ultimately backed the plan.

So in the end, the plan was tiered, based on holiday performance. The executives will still likely obtain the $14M, which is less than the $16M initially proposed. It had been argued that such bonuses are common, particularly in bankruptcy, in order to motivate and incentivize the top executives to continue to work to steer the company out of trouble, rather than jumping ship and going somewhere else more stable. (There is also a separate plan to give raises to many of the thousands of people currently employed by Toys R Us.) However, by achieving the goal of an EBIDA of $641M, the executives would qualify for the full $21M in bonuses. Toys R Us lawyer Joshua Sussberg said that the $641 goal would be "incredibly hard to achieve."

Also of note, the article provides Sussman's summary of the near-term goals for the company:

Toys R Us, which plans to spend around $1 billion over the next few years to transform its big box stores and improve consumer experiences, has not yet unveiled planned U.S. store closures. The company wants to present a business plan by July 15, with the hope of exiting bankruptcy before next year's holiday season

If nothing else, there's some optimism within the Toys R Us executive team that the company will emerge from bankruptcy in less than a year. Time will tell.

*EBIDA

---

comments powered by Disqus