The Advisors' Blog

This Bloomberg Law article reports on a recent House bill, “No Bonuses in Bankruptcy Act of 2021,” introduced by Rep. Cheri Bustos. The article notes that while bankrupt companies need court approval to award executive bonuses, there’s a loophole for pre-bankruptcy bonuses. In addition to barring executives making more than $250k a year from receiving bonuses during bankruptcy, the bill would allow the DOJ’s bankruptcy watchdog to claw back bonuses paid within 180 days prior to the bankruptcy filing.

This bill comes on the heels of a GAO report published in September, which showed that 42 companies awarded about $165 million in pre-bankruptcy retention bonuses ahead of bankruptcy filings. The GAO report also notes that nearly all stakeholders GAO interviewed viewed pre-bankruptcy bonuses as problematic (though on the flip side, others have argued that companies need to give bonuses to retain talent during the bankruptcy process).

Bottom line – whether or not in a bankruptcy context, if a company’s executives get hefty sums while employees face layoffs or steep salary cuts, that will likely get a lot of (negative) attention. Companies may want to get started on their pay ratio and compensation narratives now if there’s any chance for public backlash.

– Emily Sacks-Wilner