The Advisors' Blog

– Liz Dunshee

As we brace for a possible surge in Chapter 11 filings due to the pandemic, this memo from Compensation Advisory Partners suggests that some shareholders might be more understanding of executive awards intended to retain executives who can guide the company through these challenging times – if the rationale is adequately explained. Here’s an excerpt:

While situations vary by industry, most agree that this flurry of bankruptcy filings is not the result of poor management but rather the inevitable impact of unprecedented and unforeseeable broad shutdowns across the country to contain the pandemic. The companies entering bankruptcy need continuity, stability, and motivated leadership. Carefully designed and communicated retention and performance awards can play an important role in keeping leadership in place and focused on moving the company through the restructuring process.

The memo sorts through recent Form 8-K announcements to summarize common parameters for these types of awards. It notes that a few companies have included a performance-based clawback to improve optics. It also touches on the rare arrangement of executive severance programs in bankruptcy.