Law360 (August 28, 2020, 11:35 PM EDT) -- Bankrupt car rental agency Hertz Global Holdings Inc. said Thursday that its executives and managers deserve bonuses totaling $14.6 million, telling a Delaware bankruptcy court that although it already shelled out $16.2 million to hundreds of its employees in retention incentives, the amount the company paid is lower than it should be.
Hertz filed for Chapter 11 protection in May, citing a major downturn in business as the COVID-19 pandemic ravaged the travel industry and about $20 million in debt. The company said its business declined by 75% almost immediately after widespread business and travel restrictions were implemented in March.
Ahead of its bankruptcy petition, the company furloughed and laid off thousands of employees, eliminating many senior staff positions, according to the company. The company also entered into retention agreements with about 340 employees, paying them a total of $16.2 million to stick around.
But Hertz said Thursday that overall compensation opportunities for its employees remain "below the company's historic levels and are inadequate to appropriately compensate employees relative to competitive opportunities in the marketplace." Meanwhile, they've seen their workloads grow to unprecedented levels, according to the motion.
"Now in the midst of these Chapter 11 cases, it is essential that the debtors' management remain motivated and be adequately incentivized to accomplish the new and difficult tasks before them," Hertz said. "Their continued performance is critical to the success of the debtors' reorganization efforts."
The company has already seen a number of resignations among its leadership team, including its CEO and chief financial officer, Hertz added.
Hertz's compensation committee has thus developed two compensation plans that would reward 14 senior managers as well as about 295 members of its broader management team, according to the motion. None of the members of the compensation committee would see incentives from the plans, the company said.
Specifically, the company is seeking approval of a key employee incentive program for its executives, who could receive awards ranging from $134,750 to $1.26 million. It's also proposed an employee incentive plan under which higher-ranking employees could come away with between $22,500 and $200,000. Other members of the broader management team will see awards of either $15,000 or $10,000
"Each of the incentive loans is designed to reward the strong performance of participants whose efforts will be critical to the debtors' operational and restructuring success," Hertz told the court.
According to the bankruptcy case, about 80% of Hertz's fleet was in use at the beginning of the year, but it has no hope of being able to deploy that many vehicles in the near future. The company had planned to expand its fleet to more than 880,000 vehicles by the summer — now, it's canceled orders for new vehicles and returned recently acquired vehicles, Hertz said.
In June, Hertz dropped its plan to issue up to $1 billion in new and potentially doomed stock to finance its global business and bankruptcy case, days after the U.S. Securities and Exchange Commission said the agency planned to review the proposal.
Last month, U.S. Bankruptcy Judge Mary F. Walrath gave her blessing to a deal between Hertz and its fleet financing lenders that pushes litigation over a master lease agreement until at least January. Hertz was attempting to reject the vehicle leases held by non-debtor affiliate Hertz Vehicle Financing, which itself owes billions to bank lenders for financing the vehicle fleet, according to filings.
Per the agreement, Hertz said it would sell off 182,000 vehicles by the end of the year and pay $650 million in vehicle lease obligations during that time.
"This agreement establishes an interim peace between the debtor and the vehicle lenders, who at the petition date were owed nearly $11 billion," debtor attorney Thomas E. Lauria said in July. "The peace, we believe, is an important step in the process of moving the debtors toward a responsible value maximizing reorganization and ultimately an emergence from Chapter 11."
Executive bonuses are not uncommon in bankruptcy cases — including many in the midst of COVID-19 — though they are frequently opposed by bankruptcy watchdogs. In June, a Texas bankruptcy judge signed off on discount Stage Stores Inc.'s plan to pay up to $1.7 million in bonuses to its executives.
In that case, Henry Hobbs of the U.S. Trustee's office objected to the bonuses, arguing the company had failed to provide sufficient proof that the executives' duties were connected to the goals and that the goals were a challenge to meet. But U.S. Bankruptcy Judge David Jones ruled that the plan was "entirely appropriate" and had the support of the creditors who will be funding it.
Hertz representatives didn't immediately return a request for comment late Friday.
Hertz and its affiliates are represented by Thomas E. Lauria, Matthew C. Brown, J. Christopher Shore, David M. Turetsky, Andrea Amulic, Jason N. Zakia, Ronald K. Gorsich, Aaron Colodny, Andrew Mackintosh and Doah Kim of White & Case LLP and Mark D. Collins, John H. Knight, Brett M. Haywood, Christopher M. De Lillo and J. Zachary Noble of Richards Layton & Finger PA.
The case is In re: The Hertz Corp. et al., case number 20-11218, in the U.S. Bankruptcy Court for the District of Delaware.
--Additional reporting by Vince Sullivan, Rick Archer and Jeff Montgomery. Editing by Michael Watanabe.
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