When major companies file bankruptcy, yet the senior leaders still take their million dollar bonuses.

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If you were/are a CEO of a major company and your company is getting ready to file Chapter 11, how would you handle your current due bonus?

Bankruptcy
CEOs
Bonuses
Nikki Landry
73 months ago

4 answers

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I experienced this very scenario, albeit as the director of a smaller company. It is a tough issue, with a straightforward answer.

The CEO is "owed" the compensation and may have done everything possible to save the company. But CEO might also be a primary contributor to the failure of the company.

Regardless, I would have liked our CEO to forgo his bonus since he had been the CEO for 4 years and the primary point of failure was caused by something he had promised to manage. He chose to take the bonus, accelerating the filing.

The CEO contract can contain a proviso that eliminates/suspends variable compensation if the company is a) in bankruptcy or reasonably expected to enter into bankruptcy in the next 12 months. That proviso becomes effective after a certain number of months of CEO service.

Tucker Twitmyer
73 months ago
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I believe strongly in personal responsibility and accountability of senior leadership so depending on the nature of the compensation structure I would forego any portion of my bonus that was contingent upon performance metrics. Any portion of my bonus that was based on work completed or guaranteed I would accept. Corporate CEOs are grossly overcompensated, especially when viewed on a historical and relative basis. We need to stop reward poor ethical behavior and poor financial performance. There should be a reasonable base salary and bonus should be closely tied to long term performance (not driven by quarterly earnings reports).

Joseph Roos
73 months ago
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I would make sure that it was accrued for in the financials. Once you file, any payments made can be clawed back after they were made to settle debt based on the bankruptcy trustee. If it's payable then you should pay it out but hold on to it - let the trustee figure it out. If it's not payable, then don't take it as that could constitute fraud and embezzlement.

Richard Kim
73 months ago
+1 Contractual bonus often count as obligations of the company and can be a liability of the Directors should the company not have sufficient assets. Be careful to make sure that these payments, accrued vacation, etc. are in your calculation of liabilities and that you understand the specific jurisdictional statutory liabilities placed on the Directors. - Tucker 73 months ago
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I think it would depend on the financial condition of the company when I became CEO. If the company was strong, then it would be wrong to accept a performance bonus when the performance suffered while I was in charge, but if the compensation was offered because I was hired to guide the company through an existing financial crisis, then it should be paid. It probably should still be deferred until the leadership had successfully exited bankruptcy protection.

George Duckworth
73 months ago

Have some input?