Trimming Delphi bonuses was the right thing to do

Trimming Delphi bonuses was the right thing to do

At least one New York bankruptcy judge gets it.

U.S. Bankruptcy Judge Robert Drain said the other day that he would approve a plan for Delphi Corp. to emerge from bankruptcy, but only if tens of millions of dollars in cash bonuses for executives were trimmed from the plan.

Delphi submitted a plan that would have paid as many as 500 executives bonuses of almost $88 million for their work over the last 21⁄2 years.

Delphi Corp. proposed paying Executive Chairman Steve Miller $8.3 million and CEO Rodney O’Neal $5.3 million when the company leaves bankruptcy protection. The other $79 million would be split among 21 other high executives and nearly 500 lower level managers.

Judge Drain told the company to cut its executive bonus plan to $16.5 million total. Under Delphi’s plan, Miller, who agreed to forgo a salary shortly after taking the CEO’s job in June 2005, would have collected an average of about $60,000 a week for his efforts. While that’s not an extraordinary amount in these days of CEOs who make hundreds and thousands of times as much as average workers, it is an unseemly amount under the circumstances.

At Delphi Packard in Warren, wages for workers under the new contract would be pegged at $640 to about $1,000 a week for veteran workers and $440 for new hires.

Miller essentially oversaw the dismantling of a slew of Delphi auto parts suppliers that were spun off from the General Motors parent corporation years ago.

When the reorganization is complete, a workforce of about 33,000 will be slashed to 6,000, pay and benefits for assembly workers will be slashed and 20 plants will be closed.

A bitter pill

This is an especially difficult pill to swallow in Warren, which was once the world headquarters of the Packard Electric Division of General Motors. Before the disastrous spin-off, Packard Electric had adapted to the demands of the world marketplace. It had diversified, it had established truly global operations, was providing a world class product and was profitable. While the workforce in Warren had shrunk, the operations there remained vital, and it is difficult to imagine Packard being dragged into bankruptcy if it had continued operating as a separate entity.

While there is some solace in that Warren is one of only eight U.S. Delphi plants to survive the shakeout, there is little reason that Delphi Packard workers — former and present — should consider the combined efforts of Miller and O’Neal to be worth $13.6 million.

It will be interesting to see how Delphi responds to the judge’s order. Will it still consider 500 executives worthy of bonuses and divide the smaller amount accordingly, or will it simply give the lion’s share to a small number at the top?

Which ever way the pie is divided, the executives who saw Delphi through its reorganization will come out far ahead of most of the company’s employees. While the judge ordered the cash bonuses trimmed, he left intact that part of the company’s compensation proposal giving more than 500 managers stock totaling 8 percent in the reorganized Delphi.

The restructuring plan was created assuming a market value for the company of $12.8 billion, or $59.61 a share, which means Miller and all the executives who will receive shares have ample incentive to root for the success of the new and leaner Delphi.