Here is an issue for the House

[Marvin the Martian]

Toys R Us could not pay their employees their severance pay, but won court approval to pay bonuses to executives. Sears is also seeking bonus pay for top executives while denying promised severance pay to employees.

If I am a smart House member, I start writing a law to boost severance pay in priority over bonuses. This is a huge political winner.

 

[JamieDimonsBalls]

Toys R Us could not pay their employees their severance pay, but won court approval to pay bonuses to executives. Sears is also seeking bonus pay for top executives while denying promised severance pay to employees.

If I am a smart House member, I start writing a law to boost severance pay in priority over bonuses. This is a huge political winner.

Toys r Us put together $20 million I think in a pooled fund per an article I saw last month.

Part of the problem you want fixed depends on jurisdiction of the bankruptcy filing I think (could be wrong not a Bx or Rx banker). Bankruptcy codes differ to some extent by state depending on venue.

 

[Noodle]

Toys r Us put together $20 million I think in a pooled fund per an article I saw last month.

Part of the problem you want fixed depends on jurisdiction of the bankruptcy filing I think (could be wrong not a Bx or Rx banker). Bankruptcy codes differ to some extent by state depending on venue.

Bankruptcy law is federal. I do not believe this issue is dictated by state law at all

 

[JamieDimonsBalls]

Bankruptcy law is federal. I do not believe this issue is dictated by state law at all

Aren't exemptions and interpretations different by state though (e.g. some are more debtor friendly, some are more creditor friendly)? I thought employee benefits (of which severance may be included in) was handled differently across state lines, but I could be wrong.

 

[Noodle]

Aren't exemptions and interpretations different by state though (e.g. some are more debtor friendly, some are more creditor friendly)? I thought employee benefits (of which severance may be included in) was handled differently across state lines, but I could be wrong.

I believe that severance might be treated a little differently in a few states, but only if state law mandates severance pay. Even then the severance pay is going to be a pittance. Otherwise it’s going to be lumped in with other ordinary debts (assuming the company is contractually obligated to pay severance).

But, more importantly, current expenses such as bonuses to executives and other compensation to current employees always gets paid ahead of everything else. No state law can change that.

 

[Marvin the Martian]

I believe that severance might be treated a little differently in a few states, but only if state law mandates severance pay. Even then the severance pay is going to be a pittance. Otherwise it’s going to be lumped in with other ordinary debts (assuming the company is contractually obligated to pay severance).

But, more importantly, current expenses such as bonuses to executives and other compensation to current employees always gets paid ahead of everything else. No state law can change that.

I usually think of bonuses are for hitting targets. I wonder what targets Sears and Toys were hitting given their total collapse? "We sold one item this quarter, all executives get $2 million" might explain their failings.

Sears of course died trying to follow the teachings of Ayn Rand. They pitted departments against each other, certain competition was the answer. The result, departments found it easier to sabotage each other than to increase their own sales. There was no teamwork.

I wonder if we have adequately considered the idea that Rand was a Soviet agent sent to destroy America.

 

[CO. Hoosier]

But, more importantly, current expenses such as bonuses to executives and other compensation to current employees always gets paid ahead of everything else. No state law can change that.

Right, there is a difference between the an expense of the bankruptcy estate and a debt claimed against the estate. In the case of Toys R Us, the unpaid lease payments of a vacated location would be a debt, the lease payments of an active location that is operated either to liquidate the inventory or in an attempt at reorganization would be an expense--like the utility bill. Similarly with employees. Compensation of current employees is an expense, compensation owed to former employees is a debt.

If I am a smart House member, I start writing a law to boost severance pay in priority over bonuses. This is a huge political winner.

You have to separate unpaid compensation of former employees from compensation of current employees of the organization in bankruptcy. I don't believe wages or bonuses are treated differently in either case, but the amounts involved are different. Wages of the employees stocking shelves during the bankruptcy are treated the same as executive compensation. Current compensation would be an expense and gets paid first. Unpaid wages of prior employees is a debt--albeit with a high priority.

 

[CO. Hoosier]

I usually think of bonuses are for hitting targets. I wonder what targets Sears and Toys were hitting given their total collapse? "We sold one item this quarter, all executives get $2 million" might explain their failings.

Sears of course died trying to follow the teachings of Ayn Rand. They pitted departments against each other, certain competition was the answer. The result, departments found it easier to sabotage each other than to increase their own sales. There was no teamwork.

I wonder if we have adequately considered the idea that Rand was a Soviet agent sent to destroy America.

I don't think hitting targets is the issue. I think it's about the payments necessary to keep the necessary white color employees in place to administer the assets in an orderly fashion. It's always about maximizing assets for the benefit of creditors.

 

[Noodle]

I don't think hitting targets is the issue. I think it's about the payments necessary to keep the necessary white color employees in place to administer the assets in an orderly fashion. It's always about maximizing assets for the benefit of creditors.

Talk about a Freudian slip (“white color employees”)!

 

[CO. Hoosier]

Talk about a Freudian slip (“white color employees”)!

Good catch. I blame AI.

 

[JamieDimonsBalls]

Good catch. I blame AI.

Hopefully you aren't still reviewing legal docs

 

[CO. Hoosier]

Hopefully you aren't still reviewing legal docs

I have people who do that.

 

[UncleMark]

I usually think of bonuses are for hitting targets.

I think the term is misused. I've had jobs where I've been paid a monthly "bonus" based on a percentage of gross sales or gross profit. No floor, no set target. I always objected to that term being used. It more accurately should be called a "commission".

 

[JamieDimonsBalls]

I usually think of bonuses are for hitting targets. I wonder what targets Sears and Toys were hitting given their total collapse? "We sold one item this quarter, all executives get $2 million" might explain their failings.

Sears of course died trying to follow the teachings of Ayn Rand. They pitted departments against each other, certain competition was the answer. The result, departments found it easier to sabotage each other than to increase their own sales. There was no teamwork.

I wonder if we have adequately considered the idea that Rand was a Soviet agent sent to destroy America.

If we are being honest, Sears died long before ESL took over. Although I enjoy the intellectual stimulation of financial engineering, in this case, the decisions made were clearly not in the best interest of shareholders or stakeholders, except for the majority owner (ESL). I was relieved to see that Eddie did not receive any of the approved bonuses.

We should also note that many of the executives that received bonuses per the court ruling were likely not the cause of the Company's demise, but rather, only took and stayed at the organization because of the monetary bonuses. When a company is sinking like Sears was the past few decades, it becomes increasingly difficult to retain and attract talent.

That being said, I'm not in favor of paying out bonuses ahead of severance pay, based on company policy. I'd rather see all payroll obligations put into a pool and divided up based on proportional percentages or some other equitable way. If contractual obligations were met to satisfy bonus requirements, the legal system should enable those to be paid, but without priority to obligations for the employees.

However, I don't want to see new regulations and legislation used to combat our societal problem of short-termism. I don't believe trying to regulate companies is a prudent way of thinking about long-term economic growth.

If there is one positive, despite the struggles of brick and mortar retail, there are still plenty of openings for these employees to quickly fill.

 

[JamieDimonsBalls]

Similarly with employees. Compensation of current employees is an expense, compensation owed to former employees is a debt.

Which makes sense based on GAAP (e.g. accrued expenses / payroll in current liabilities vs. non-current liabilities)

 

[JamieDimonsBalls]

Toys R' Us is back!

https://www.prnewswire.com/news-rel...w-vision-team--global-strategy-300792831.html

 

[Marvin the Martian]

Toys R' Us is back!

https://www.prnewswire.com/news-rel...w-vision-team--global-strategy-300792831.html

What a bizarre idea. Maybe this reinvention will work, but I hope none of my 401k funds test that theory.