Toys “R” Us has won approval to pay for $16 million in bonuses to 17 leading executives if the company hits financial targets through the holiday shopping season.
The bankruptcy court trustee Judy Robbins, a Justice department legal professional who represents the interest of creditors, had argued that the proposed bonuses were excessive and were little more than retention bonuses meant to keep the executives from jumping ship because of uncertainty about the business’s future.
While companies in personal bankruptcy are allowed to issue incentive bonuses, retention bonuses are not permitted.
“It defies logic and wisdom, not forgetting the Bankruptcy Code, that a bankrupt firm would now propose even more multi-million dollar bonuses for the senior leadership of a firm that began the entire year with employee layoffs and concludes it amid the vacation season in personal bankruptcy,” she argued found in her filing. “Seemingly, this Christmas, Toys “R” Us intends to provide not only ‘children their biggest smiles of the 12 months’ but the insiders, too.”
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In its filings in favor of the bonusues, the company had argued the obligations were necessary to get executives to perform at a high level during its bankruptcy.
“It’s the [company’s] staff members – and more particularly the senior management team – that must execute as of this critical juncture and offer the foundation for an effective turnaround,” it said found in a filing.
U.S. Bankruptcy Court Judge Keith Phillips permitted the payouts on Tuesday. Because Playthings “R” Us filed for personal bankruptcy in September, it must right now must get court approval for most of its basic business decisions.
These innovative bonuses will maintain addition to another $8.2 million in retention bonuses paid to many of these same executives before Playthings “R” Us filed for bankruptcy. They would be required to go back the retention payments as long as they quit the company within a 12 months of receiving them.
Among the 17 executives who get obligations is chairman and CEO David Brandon, who joined the company in 2015.
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The company said in addition, it has filed for a motivation program for other employees beyond the senior administration, and that such bonus plans are standard practice for companies going through a bankruptcy restructuring.
While the company asked for $16 million, the bonus strategy could actually spend $32 million if the company reaches superior to expected earnings targets. But that’s a result the company “will find very hard to achieve,” according to the filing.
The company said it had 1,600 stores during the bankruptcy filing, and 65,000 employees, although it has truly gone ahead with plans to hire additional seasonal help for the vacation season. It lost $330 million in the initial half of this year as product sales fell by 5%, and has lost more than $1.8 billion since its last reported an twelve-monthly profit five years back.
Toys “R” Us has been struggling for a long time, not simply with a change of consumers buying products from online competitors such as for example Amazon (AMZN), but also with an increase of competition from traditional brick-and-mortar merchants such as for example Wal-Mart (WMT) and Target (TGT).
Bankruptcy filings this season by itself include Gymboree, Payless Sneakers and RadioShack, which recently completed it has the second trip through personal bankruptcy.
Bankruptcies found in the retail sector are actually up about 30% so far this season, according to BankruptcyData.com, and the number of store closings offers more than tripled to about 6,700, breaking the record set through the worst of the Great Recession.