Before declaring bankruptcies, several big U.S. companies are awarding large bonuses to their top executives, according to a Financial Times report.
The practice is a common one now among companies pushed into a corner by the coronavirus pandemic, with firms like JCPenney, Hertz and Neiman Marcus taking this kind of action. Whiting Petroleum, put into a bind by the energy downturn, has also done so.
The payments usually have to do with senior managers retaining their roles while the company goes through reorganization. In Whiting's case, it concerns over $14 million paid to executives just days before the company declared bankruptcy, FT reported, including $6.4 million to CEO Brad Holly.
Defending the practice, advocates say it is aimed at minimizing disruption for groups with an uncertain future. Retaining top talent, they say, will be crucial to remaining above the water.
However, opponents don't see that as good logic at all, with creditors saying the payments only serve to reward managers who have presided over failing businesses, sometimes just days away from having to lay off employees. Tom Krasner, of Miami-based fund manager Concise Capital, said the payments are unwarranted.
“If management ran the company into the ground then someone else should be able to do at least as well as them,” he told the Financial Times.
Bankruptcies are surging during the coronavirus pandemic, with 43 percent increase year-over-year in early July, according to PYMNTS. Almost 3,600 businesses had filed for Chapter 11 by then, as companies saw their businesses dwindle and die as the pandemic mandated people stayed inside. So the companies sought protection from creditors.
The numbers are likely to keep going up, as even companies that were not distressed when the pandemic began will start to see the effects, and Paycheck Protection Program funds started to run out by the middle of summer.