Stop raiding bankrupt businesses by granting executives big bonuses - Crain's New York Business

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It's a startling contrast: One Fairway Market worker who sliced deli meats and cheeses through the pandemic for $33,000 a year was laid off last month with no notice. At the same time, Fairway CEO Abel Porter was promised a $325,000 bonus—all for shepherding the supermarket chain through bankruptcy.

What's more troubling is that it was Porter's second bonus in the past six months. He and his management team received a combined $1.1 million in bonuses just before Fairway filed for bankruptcy in January—as a thank-you for leading a company that has served an essential function through the pandemic out of business.

The radically different treatment between supermarket worker and supermarket CEO is a bitter pill for Fairway workers to accept—especially because 50 employees developed Covid-19, and one worker died. As Fairway's union rep told Crain's, "There is no more unfriendly place to a worker than a bankruptcy court."

But Fairway's CEO is not alone in the selfishness and greed he is displaying through one of the worst crises in this nation's history. American companies from Fairway to Ann Taylor to Modell's are bestowing bankruptcy bonuses on top executives at a remarkable rate. In this week's cover story, Crain's found that 50 companies in the first half of this year followed this pattern. In one of the most egregious cases, a court recently ruled that Neiman Marcus could hand out a combined $10 million in bankruptcy bonuses for its top executives while the company furloughed 14,000 workers.

Bankruptcy bonuses have been a problem for decades. These greedy golden parachutes received so much public scrutiny during the Enron scandal that Congress passed the Bankruptcy Abuse Prevention and Consumer Protection Act in 2005. The law bans companies in Chapter 11 protection from paying retention bonuses to senior managers. However, the law allows "incentive" bonuses to executives who are able to achieve challenging performance goals.

But one year later, an American Bankruptcy Institute online poll found that the majority of members of the profession "strongly agreed" that companies were already sidestepping the legislation—while it was in its infancy. Bankruptcy experts quickly found that the performance goals executives had to meet were set at such a low bar that most executives could easily achieve them.

There are plenty of experts in bankruptcy law who see a clear path to fixing these problems. In 2019 Jared A. Ellias, a law professor at the University of California's Hastings College of the Law, suggested that Congress provide the Department of Justice with funding for its own executive-compensation experts to help police executive bonuses.

Congress also could create new post-bankruptcy reporting requirements that track how much compensation senior management receives two years after bankruptcy.

Sen. Elizabeth Warren, D-Mass., a bankruptcy expert, also has been encouraging reform for years. In January, well before the world had any idea that a pandemic that would ravage the nation's health and economy was on the way, she proposed a plan to roll back some of the favorable provisions for corporations in the 2005 bankruptcy reform law and give middle-class debtors more relief.

A spokesman for Sen. Charles Grassley, R-Iowa, sponsor of the 2005 legislation, told Crain's that the senator would look into reviewing that 15-year-old law.

It's critical for Congress to take up this fight.

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Stop raiding bankrupt businesses by granting executives big bonuses - Crain's New York Business
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