Sears’ Strug­gles

Not sur­pris­ingly, the re­tailer asked the court for bonuses to re­tain ex­ec­u­tives.

Footwear News - - CONTENTS - By Hi­lary Ge­orge-Parkin

What its bank­ruptcy means for the rest of the in­dus­try.

Sears filed a mo­tion in bank­ruptcy court late last month seek­ing ap­proval to pay up to $25 mil­lion in ex­ec­u­tive bonuses dur­ing Chap­ter 11 pro­ceed­ings.

The re­quest was cer­tain to anger many, com­ing just weeks af­ter the be­lea­guered re­tailer an­nounced nearly 200 ad­di­tional store clos­ings, rep­re­sent­ing thou­sands of em­ployee lay­offs and adding to a list of hun­dreds of lo­ca­tions that it has shut­tered in re­cent years.

Even so, it wasn’t un­usual. “Typ­i­cally, com­pa­nies that en­ter into Chap­ter 11 will ask for bonuses to re­tain and in­cen­tivize ex­ec­u­tives to stay with the com­pany,” said Co­rali Lopez-Cas­tro, a bank­ruptcy at­tor­ney and man­ag­ing partner at Kozyak Tropin and Throck­mor­ton.

Sears’ lawyers ar­gue that the se­nior man­age­ment and em­ploy­ees who would ben­e­fit from the bonuses “are crit­i­cal to [the com­pany’s] abil­ity to max­i­mize stake­holder value through this re­struc­tur­ing process” and that with­out in­cen­tives, they could jump ship, tak­ing with them “in­sti­tu­tional knowl­edge” and “long-stand­ing re­la­tion­ships … that would be dif­fi­cult and ex­pen­sive, if not im­pos­si­ble, to re­place.”

The bonuses would be con­tin­gent on meet­ing cash flow goals and would max out at nearly $250,000 on a quar­terly ba­sis for a hand­ful of top ex­ec­u­tives with base an­nual salaries of around $1 mil­lion. A larger group of 322 un­named em­ploy­ees would be el­i­gi­ble for “cash re­ten­tion awards” equal to be­tween 30 and 40 per­cent of their salary for stay­ing with the com­pany, which would be paid out of a pool of $16.9 mil­lion. While these fig­ures may raise some eye­brows, it’s true that Sears’ man­agers are likely work­ing un­der the kind of con­di­tions that might en­cour­age some to leave: stress­ful and un­cer­tain, with a loom­ing threat of lay­offs.

But that’s also true for the rest of the re­tailer’s 68,000-odd em­ploy­ees, and none of them are see­ing any bonus money — de­spite the mo­tion’s pre­lim­i­nary state­ment that “it is a tru­ism, but for good rea­son, that em­ploy­ees are the lifeblood of a com­pany.” In fact, some hourly work­ers told CNN that their promised eight weeks of sev­er­ance pay have been cut to four, with Sears cit­ing bank­ruptcy pro­ceed­ings. (Sears de­clined to com­ment on ei­ther the sev­er­ance pay­ments or bonus plans.)

The com­pany is likely to come un­der close scru­tiny, thanks to the an­nounce­ment last month that two of Toys R Us’ pri­vate eq­uity owners are set­ting up a $20 mil­lion sev­er­ance fund to pay for­mer work­ers who lost their jobs when the com­pany closed its doors. The fund, cre­ated by Bain Cap­i­tal and KKR (but not the com­pany’s third owner, real es­tate firm Vor­nado), comes af­ter months of out­cry from the pub­lic and Congress in sup­port of the 31,000 em­ploy­ees that were de­nied sev­er­ance when the chain abruptly shut­tered its re­main­ing stores over the sum­mer. Sev­eral ex­ec­u­tives, mean­while, walked away with mil­lions in bonuses.

Sears last week se­cured court ap­proval for $350 mil­lion in ad­di­tional bank­ruptcy fi­nanc­ing that is ex­pected to keep more stores open as it re­or­ga­nizes, ac­cord­ing to Reuters. The bank­ruptcy judge over­see­ing the case said the loans — in­clud­ing the re­tailer’s orig­i­nal round of Chap­ter 11 fi­nanc­ing to­tal­ing $300 mil­lion — will “ben­e­fit ev­ery­body.” Sears has not yet said whether it plans to use new funds to beef up em­ployee sev­er­ances. Sears’ mo­tion is set for Dec. 20.

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