Bankrupt Toys R Us seeks OK for $16 million in extra pay for top executives
WAYNE, N.J. — Bankrupt retailer Toys R Us is asking for approval to pay 17 of its senior executives $16 million in incentive pay. Those bonuses could be larger if toy sales during the holiday season are better than expected.
The New Jersey-based toy seller is using the slogan “Today we play” in its turnaround campaign, but in documents filed with U.S. bankruptcy court Wednesday they told the bankruptcy judge that first, we must pay.
"The importance of having these individuals fully incentivized cannot be overstated," the motion states.
Toys R Us Chief Executive Dave Brandon has a base salary of $3.7 million but receives bonuses and long-term incentives that bring his annual compensation to $12.5 million, according to court documents.
The request could be controversial. Attorneys for Toys R Us acknowledged in the filing that not all of the "stakeholders" in the bankruptcy, such as creditors and the U.S. Trustee, have agreed to the bonus plan.
The bonuses would be paid to Brandon and his top executives.
The motion for a senior executive incentive plan states that the bankruptcy and its aftermath have been stressful for management and that “the most important asset” in the company’s turnaround plan is its employees. It also states that the top employees are being asked to perform “monumental tasks” as a result of the restructuring.
In order to earn the full bonuses, Toys would have to have EBITDA (earnings before interest, taxes, depreciation, amortization) of at $550 million. Smaller bonuses would kick in if EBITDA of $484 million was achieved, 30% below last year.
If earnings of $616 million or more are achieved, the bonuses could double, but Toys R Us said in the filing that achieving that goal is highly unlikely.
Toys R Us also filed a motion seeking approval to pay another $45.8 million to 3,805 management employees who are part of the company's "non-insider" incentive plan. Those bonuses would rise to $68 million if the $616 million earnings goal is reached.
Employee bonuses plans are typical in bankruptcy restructurings. They used to be called Key Employee Retention Plans but bankruptcy law changes now requires such plans to be set up as incentive plans, rather than retention plans, and to require the executives to meet certain goals.
Toys R Us will seek approval for the bonus plan at a hearing Dec. 5 in U.S. Bankruptcy Court in Richmond, Va.
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