Executive compensation in bankruptcy

Two issues I’ve been hitting lately on this blog – airline bankruptcies and executive compensation – come together in Gretchen Morgenson’s NYT column today. She notes that, per a plan the bankruptcy court will rule on this week, 400 United execs will get 8% of the company (10 million shares), worth about $115 million, while wiping out much of equity. UAL execs will average $3.5 million/yr after bankruptcy plus bonuses of 55 -100 %. CEO Tilton will get an annual salary of $605,625 plus 100% target bonus, $4.5 million pension benefits and $3 million signing bonus. Seven top execs will get $1.39 million retention payments. $16,520 for two executives’ club dues. (This is starting to sound like Jack Welch.)

Morgenson notes that the restricted stock has advantages over mere options, that the 8 percent stake “exceeds what was described as "reasonable" by Towers Perrin, the compensation consultant employed by the company”; and the pay plan’s vesting period is “remarkably short” (20% after just 6 months).

Of course there’s a difference here from other supposedly excessive exec pay. This isn’t being determined by the shareholders or any sort of market, but by lawyers and courts. And it’s for keeping a weak carcass alive, a job I don't think the market would deem worthy.

Comments

[Robert Schwartz]

Look it was approved by the creditor's committees, who by hypothesis are capable of saying no.

Besides 8% of United Airlines sounds like a lot, but it might be 8% of nothing. United would not be the first airline to go through Chapter 11 more than once. I think USAir went twice in 2 years.

[Larry E. Ribstein]

The choices available to the creditors' committees are constrained by the rules of Chapter 11.

I agree with the risk point, but this is a problem throughout industry. Also, according to the article, the pay consultants weren't on board here.

[Robert Schwartz]

Eastern
Braniff
TWA

[Robert Schwartz]

OOPS, I forgot Pan Am.