Furniture Brands bonus plan based on easy targets, U.S. trustee says
The top executives at Furniture Brands International should not be rewarded with millions of dollars in bonuses after leaving the company’s pension fund significantly short and terminating some retiree benefits just before filing for bankruptcy protection, the U.S. bankruptcy trustee wrote in an objection filed on Wednesday.
A hearing is scheduled for this afternoon in U.S. Bankruptcy Court in Delaware on Furniture Brands’ proposal to pay $3.4 million in bonuses to seven top executives if certain targets are met by the time the company exits bankruptcy protection.
Bankruptcy trustee Roberta DeAngelis wrote in her objection to the proposal that bonuses are not warranted for several reasons. The last she mentioned were the pension plan, which is nearly $200 million short of what’s needed for its obligations, and the terminated retiree benefits.
“The executives responsible for these events should not be rewarded with additional bonuses,” she wrote.
In a footnote, DeAngelis noted that the company’s top five executives received bonuses in 2012 despite the company losing money, leading with DEO Ralph Scozzafava’s $541,968. In 2010, Scozzafava received a bonus of $4 million.
But DeAngelis’ main objection was that the goals that must be met in order for the executives to get the bonuses are much too easy to reach.
At the time Furniture Brands proposed the bonuses, its primary bidder was Oaktree Capital Management, which offered $166 million. But last week, after a round of counter offers, the bankruptcy court selected KPS Capital Partners to be the primary bidder, with an offer of $280 million. Since the auction period ends in early December, bidding may yet increase, the filing said.
“The progression of pre-auction offers demonstrates that the sales targets were not stretches, but instead were ‘lay-ups,’” DeAngelis wrote.
And that $114 million increase in bidding appears to be due to nothing that the executives have done but instead to the efforts of a committee representing unsecured creditors, the filing said.
Further, while Furniture Brands said in its motion asking for the bonuses that the bankruptcy filing will require increased work for its top executives, DeAngelis pointed out that the bankruptcy code explicitly states that because increased work is required in virtually all such cases, bonuses must be justified by something more than that.