Geoffroy van Raemdonck, CEO of Neiman Marcus reported having received around $10 million in pay raises along with other executives of the brand just days before filing for bankruptcy. Photo Credit: Patrick MacLeod/WWD
As the unpredictable COVID-19 pandemic sweeps across the nation and the world, many companies have had to re-evaluate and assess their current standings. This has lead to “more than 3,600 Chapter 11 (bankrupt) filings this year by companies seeking court protection from their debt”, increasing bankruptcy filings with a “26% jump from the year-ago period” according to Epiq Global.
According to the United States Courts “A case filed under chapter 11 of the United States Bankruptcy Code is frequently referred to as a "reorganization" bankruptcy.” Companies will mostly file for a chapter 11 bankruptcy after fully analyzing their profits and deciding they need more time to “restructure their debts” according to Investopedia.com. Filing under chapter 11 gives the debtor a fresh start, however, requires much thought as is the most expensive and complicated form of bankruptcy leaving it only an option for the top companies in the country. Many of America’s household names such as JCPenney, Neiman Marcus, Chuck E. Cheese, GNC, and Hertz just to name a few, have all filed for bankruptcy under chapter 11 in the past couple of months. However, according to Reuters, many of these big companies paid their CEOs millions of dollars just days before filing for bankruptcy.
This may be due to the fact that to be able to file under chapter 11 of the United States Bankruptcy Code, you may not “pay executives retention bonuses while in bankruptcy.” By doing this beforehand, days before their bankruptcy filing, major companies are finding loopholes in the law.
Take for example JCPenney, an American department store with over 800 locations across America. According to an article by Forbes, JCPenney had paid out their top executives and managers millions of dollars just 5 days before filing for bankruptcy. Forbes reported that “In a regulatory filing, it was disclosed that J.C. Penney CEO Jill Soltau received a $4.5 million bonus” and that “Three top executives, including chief financial officer Bill Wafford, chief merchant officer Michelle Wlazlo and chief human resources officer Brynn Evanson each received a $1 million payout.”
Hertz, an American car rental company reported having let go of 16,000 employees, scraped up enough money to pay their CEO over $9 million right before filing for bankruptcy. It's reported Hertz paid out “over $16 million in bonuses days before filing for bankruptcy” with “a $700,000 bonus to chief executive Paul Stone. Chief financial officer Jamere Jackson was awarded $600,000 and chief marketing officer Jodi Allen received $189,633”, according to the Wall Street Journal and Forbes.
Chuck E. Cheese, a staple for young kids all over America had filed for bankruptcy right after paying $3 million in “retention bonuses” to its three top executives. GNC, another large department store chain paid out about $4 million in cash bonuses to top executives, prior to its Chapter 11 filings. Even the luxury department store Neiman Marcus contributed to this growing list by paying “about $10 million in pay raises to their CEO Geoffroy van Raemdonck and other executives” before their filing under chapter 11.
With millions of dollars being handed out to these CEOs and executives who already make millions and have money to live lavishly day to day, wouldn’t there be more of a need to use those million-dollar “retention bonuses” to keep the over hundreds of thousands of employees that are being fired from over 3,600 companies nationwide?
Critics point out that, the millions being spent on retention bonuses are being handed out to the leadership and management that have gotten these companies to where they are today, which is filing for bankruptcy instead of avoiding the problem in the first place. Although the pandemic does account for much of the blame, companies should not be spending millions in paying their top executives who already have money, and instead, be spending the money on the “51 million Americans (that) have recently filed for unemployment”. According to Forbes “The competition for a new job is ridiculously competitive. There are hiring freezes and layoff announcements on a nearly daily basis.”
Many of these million-dollar payouts could be understandable if there was a system put in place to use this money to help compensate for the job loss of the millions of individuals in the working class, instead of being circulated back into the top 10%. With nothing being done to solve this problem, the power hierarchy, and the wage distribution inequality will continue to grow immensely, leaving the working class and many others in great danger of being homeless, or losing all of their life savings while CEOs and top executives continue to live off of their million-dollar bonuses.