NEW YORK (CNNMoney) — Toys "R" Us has asked the bankruptcy court for permission to pay $16 million in bonuses to its top executives if the company is able to hit some financial targets during the upcoming holiday shopping season.
Toys "R" Us filed for bankruptcy in September, and now must get court approval for many of its basic business decisions. The court will have the final say on its incentive plan.
In the filing made with the court Wednesday the company argues the bonuses are necessary to get executives to perform at a high level during its bankruptcy.
"It is the [company's] employees — and more particularly the senior management team — that must execute at this critical juncture and provide the foundation for a successful turnaround," it said in the filing.
Among the 17 executives who would get payments is chairman and CEO David Brandon, who joined the company in 2015.
Spokespeople for the company did not immediately respond for a request for comment on the bonus plan.
While the company asked for $16 million, the bonus plan could actually pay out $32 million if the company reaches much better than expected profit targets. The filing says that's a result the company "will find very difficult to achieve."
The filing also disclosed that some of Toys "R" Us's top executives received a combined $8.2 million in "retention" bonuses prior to the bankruptcy filing. But those payments are not included in the new incentive plan for which the company is seeking permission. They would be required to return the retention payments should they quit the company within a year of the payment.
The company said it had 1,600 stores at the time of the bankruptcy filing, and 65,000 employees, although it has gone ahead with plans to hire additional seasonal help for the holiday season. It lost $330 million in the first half of this year as sales fell by 5 percent, and has lost more than $1.8 billion since its last reported a profitable year five years ago.
Toys "R" Us has been struggling for years, not just with a shift of consumers buying goods from online competitors such as Amazon, but also with increased competition from traditional brick-and-mortar retailers such as Wal-Mart and Target.
It is also not the only traditional retailer to run into financial trouble. Bankruptcy filings this year alone include Gymboree, Payless Shoes and RadioShack, which recently completed its second trip through bankruptcy.
Earlier this year Sears Holding, owner of the Sears and Kmart brands, warned there was "substantial doubt" it will be able to stay in business.
Bankruptcies in the retail sector are up about 30 percent so far this year, according to BankruptcyData.com, and the number of store closings has more than tripled to about 6,700, breaking a record set during the worst of the Great Recession.
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gotham77 on November 17th, 2017 at 00:14 UTC »
It’s a bad looking headline but the details are important. They only get the bonuses if the company meets certain sales and revenue targets.
In other words, the executives only get their payday if they save the company from bankruptcy.
Also, the CEO only came on in 2015. He’s not the one who ran the company into the ground. He’s not being rewarded for failure.
Shalabadoo on November 16th, 2017 at 18:40 UTC »
It's Chapter 11 bankruptcy, not Chapter 7. They're not throwing in the towel, they're trying to revitalize themselves. Basically hitting a reset button.
And yes, in order to compete with Target and Amazon you're going to have to pay executives a lot of money to attract top talent. It's not the end of the road for them yet if they can adapt properly to the new market. Stores like Best Buy have succeeded in the age of Online.
Laminar_flo on November 16th, 2017 at 18:38 UTC »
This is always a hugely controversial area, but its worth understanding the other side of this issue.
'Retention bonuses' are extremely common in bankruptcies, and not paying them could make the situation worse and result in a bigger loss for bondholders. First and most important thing is that Toys R Us filed Ch11/Reorganization, not Ch7/Liquidation. Toys R Us will continue to exist.
When a company declares BK, the first thing that happens is that everybody starts looking for a new job. Secondly, BKs are extremely complicated and delicate. If this goes wrong, then the Ch11 could convert to Ch7 and then Toys R Us goes away and everybody loses their jobs including store level employees. These retention bonuses exist to reward the turnaround team for 1) succeeding in the restructuring, and 2) staying at the company. Again, if your whole management team leaves the company in the middle of a BK, there's nobody to drive the car, and you end up going off the cliff.
Lastly, and very importantly, this money is paid out of the bondholders recovery pool. In plain english, this money isn't coming from Mom & Pop investors, and it was never going to the store level associates - the money is coming from hedge funds/banks/PE firms/vulture funds. They are very sophisticated investors who know what they are getting into and they are also the people that Reddit loves to hate.