Friday, March 23, 2007
A union lawyer says the bonuses are given for the 'mere act of breathing.'
NEW YORK (AP) -- A federal bankruptcy judge approved Delphi's extension of a plan to pay as much as 37 million in bonuses to top executives.
Delphi Corp. lawyer John W. Butler said that pay for managers of the auto parts maker is uncompetitively low and that the plan provides an integral part of total pay packages.
Judge Robert Drain ruled that paying the bonuses were an exercise of sound business judgment, and that he saw them as necessary to the company's competitiveness.
Delphi, one of the world's biggest auto parts suppliers, is going through the largest manufacturing bankruptcy in history, according to Butler.
Four unions representing Delphi employees -- the United Auto Workers, International Union of Electrical Workers, United Steelworkers and International Brotherhood of Electrical Workers -- objected to the performance-based bonus program.
UAW lawyer Babette Ceccotti said the plan posed a distraction to ongoing negotiations between the company and union. The company's execution of its restructuring plan has eliminated tens of thousands of union jobs at Delphi.
Eligibility
As of Feb. 15, 440 Delphi employees were eligible for the bonus plan, under which total payouts could range from 20.1 million, if targets are met, to a maximum of 37.4 million.
The size of the bonuses were tied to a companywide earnings target and profit goals for Delphi's various divisions for the first six months of this year.
Executive compensation was a key focus of a bankruptcy reform act that was put into effect just days after Delphi entered bankruptcy in October 2005. A change in the law, which does not apply to Troy, Mich.-based Delphi Corp., prohibits employees from getting retention bonuses unless they have secured a competing offer for equal or higher pay.
Delphi lawyers said in court filings that the plan was strictly an incentive program, not a retention bonus plan.
The IUE said the program was the type of plan lawmakers were trying to ban through the reform act, an argument the judge disputed.
"Pegging these bonuses to easily reached targets turns this program into a simple [key employee retention plan] in which executives are rewarded for the mere act of breathing," union lawyers wrote in court papers.
Section tested
The relevant section of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 was tested in September in a separate case involving Toledo-based auto parts supplier Dana Corp.
Judge Burton Lifland rejected a bonus plan for six top Dana executives, saying the company tried to circumvent the new law by paying executives to sign agreements that would prevent them from going to work for rivals.
In its effort to exit bankruptcy, Delphi has endorsed a deal under which three private equity investors -- Appaloosa Management LP, Cerberus Capital Management LP and Harbinger Capital Partners Master Fund I -- as well as Merrill Lynch & amp; Co. and UBS Securities LLC will invest 1.4 billion to 3.4 billion in a restructured Delphi.
The deal depends on reaching agreement with unions over labor contracts. As of March 15, either the investors or the company can withdraw from the deal.