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house Bill H.R. 1557

Should Companies in Bankruptcy be Prohibited From Paying Bonuses to Executives?

Argument in favor

By paying out bonuses to executives while their companies are going through bankruptcy, corporations are effectively rewarding them for running a company into the ground. Rather than giving them bonuses, companies should be focused on securing the livelihoods of their workers while undergoing bankruptcy proceedings.

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05/30/2019
Paying debts and obligations before bonus.
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Langho's Opinion
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05/30/2019
Yes because they’re the ones are probably bankrupt the company you’re in bankruptcy and then giving them bonuses I don’t think so
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Celiaann's Opinion
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05/30/2019
Why? If you aren’t paying your employees or bills why should execs empty the coffers lining their own pockets? They should get NOTHING! I bet if that president is set there will be quite a change in how organizations approach bankruptcy!
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Argument opposed

Corporate executives should be paid compensation that they’re owed by the company even if it’s going through bankruptcy, just as any other worker should, as that can lead to better results and a more desirable outcome for all. It’s not the federal government’s job to tell corporations how to compensate their executives.

Ross's Opinion
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05/30/2019
One thing I see as a problem here is that Congress does not no how to handle money, as we have seen when it comes to government set downs. Why should we trust them to tell others how to handle theirs. Maybe we need to have a law passed that says that if the government shutdown because of lack of money we have to have new election to find people who can handle public money better.
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Seth's Opinion
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05/30/2019
Intelligent people can agree with something without demanding that it be enforced with theft, violence, or the threat of kidnapping or even death in the face of non compliance. Congress has been failing us for over 100 years and y’all still get paid. Leave the private sector alone.
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Mark's Opinion
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05/31/2019
Get the governments hands out of the marketplace
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bill Progress


  • Not enacted
    The President has not signed this bill
  • The senate has not voted
  • The house has not voted
      house Committees
      Committee on the Judiciary
      Antitrust, Commercial and Administrative Law
    IntroducedMarch 6th, 2019

What is House Bill H.R. 1557?

This bill — the No Bonuses in Bankruptcy Act of 2019 — would prohibit companies in Chapter 11 bankruptcy proceedings from paying out bonuses to highly-compensated employees and insiders of the debtor. “Highly compensated” employees would be defined as persons employed at annual rates of compensation exceeding $250,000.

Impact

Companies in Chapter 11 proceedings; Corporate executives; and corporate creditors.

Cost of House Bill H.R. 1557

A CBO cost estimate is unavailable.

More Information

In-Depth: Rep. Cheri Bustos (D-IL) reintroduced this bill from the 115th Congress to end executive bonuses during corporate bankruptcies:

“Wealthy corporate executives and insiders shouldn’t be able to cash out during a bankruptcy while workers are laid off and struggle to pay the bills. I’d like to thank the folks who wrote to me about this issue – because it absolutely isn’t right. The bipartisan bill I introduced today would get rid of bonuses for corporate executives who’ve run their companies into the ground – and give a voice to the workers who put in the hard labor every day and truly power our communities.”

Last Congress, Rep. John Duncan (R-TN) introduced this bill to prevent companies in Chapter 11 bankruptcy from paying bonuses to highly compensated employees, such as executives, and insiders.

In recent years, corporations have come under fire for paying bonuses out to executives while going through Chapter 11 bankruptcy. Hostess BrandsSports AuthorityToys 'R' UsRadio ShackiHeartMedia, and Borders are among the companies that have been criticized for paying their executives sizable bonuses even as their employees lose their jobs. Writing about Toys ‘R’ Us CEO David Brandon’s $2.8 million retention bonus just before his company’s Chapter 11 filing, Axios’ Dan Primack commented on the inequality between Brandon’s bonus and those of the company’s employees:

“Brandon could receive nearly $15 million that is related to a bankruptcy that it was his job to prevent from happening in the first place. Other senior execs could get over $1 million a piece. The other 3,805 employees get to share from what would be a $60 million pot, per court approval, which works out to less than $16,000 per head. Guess which group will be manning cash registers at 5pm on Thanksgiving Day, and which will be home with their families?”

Defending its executive bonuses during Chapter 11 proceedings, Hostess argued that its “prime goal now is to maximize the value of the company as it goes through liquidation,” and argued that executives’ bonuses, which were linked to their achievement of certain benchmarks for rapid disposal of the company’s assets, were needed to incentivize speedy, effective work. The company argued that the rapid disposal of Hostess’ assets was “ultimately to the benefit of all the people and the organizations to whom Hostess owes money,” including employees.

Richard Levin, a partner at the law firm Cravath, Swaine, and Moore, adds that companies in bankruptcy "need to attract the best people and compensate them for the tough work they have to perform," and finding a replacement can be expensive. For executives, the work is especially tough, as they work two difficult jobs: running the troubled business and attending to all the legal and procedural headaches associated with Chapter 11 court proceedings.

Some research also suggests that key employee retention plan (KERP) bonuses paid out to senior employees of companies in bankruptcy restructuring improve companies’ outcomes coming out of bankruptcy. In a study of 417 public companies that filed for bankruptcy from 1996-2007, Queens School of Business professor Wei Wang and Hong Kong University of Science and Technology’s Vidhan Goyal found that firms with KERPs in place moved through restructuring faster and were more likely to be successful after emerging from Chapter 11

Additionally, they found that 78% of incentive bonuses were paid out contingent on bankruptcy resolution, and almost half allowed for bonuses contingent upon the firm’s emergence from Chapter 11 — in other words, they were closely tied to performance. Finally, they found that the total cost of these plans was quite low in the grand scheme of things. Wang pointed out:

“One thing I found surprising was that the total cost devoted to these plans in the 417 companies studied was less than 1 percent of the firms’ pre-bankruptcy petition assets. So why are people so skeptical about these plans? If you think of legal fees, lawyers account for eight to 10 percent of assets, but people don’t argue about legal fees.”

However, in past Chapter 11 cases, the Justice Department’s US Trustee Program, a watchdog agency meant to protect the bankruptcy system’s integrity, has argued that many “incentive programs” like Hostess’ function as “disguised retention program[s],” which are “prohibited in bankruptcy cases absent extremely specific and unusual circumstances.”

This bill has four bipartisan cosponsors, including three Democrats and one Republican, in the current session of Congress. Last Congress, Rep. John Duncan (R-TN) introduced this bill without any cosponsors and it didn't see committee action.


Of Note: From 1993 to 2012, 38% of the top 500 most highly-paid CEOs headed poorly performing companies — and 22% of the top 500 CEOs’ firms either ceased to exist or received taxpayer bailouts after the 2008 financial crash.

There is a 2005 measure, fueled by popular outrage over money paid to Enron executives after that company’s implosion, that restricts “retention” bonuses that reward executives for sticking with distressed companies. However, it’s rarely enforced, and companies usually manage to justify executive pay.


Media:

Summary by Lorelei Yang

(Photo Credit: iStockphoto.com / ZargonDesign)

AKA

No Bonuses in Bankruptcy Act of 2019

Official Title

To amend title 11 of the United States Code to prohibit the payment of bonuses to highly compensated individuals employed by the debtor and insiders of the debtor to perform services during the bankruptcy case, and for other purposes.

    Paying debts and obligations before bonus.
    Like (145)
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    One thing I see as a problem here is that Congress does not no how to handle money, as we have seen when it comes to government set downs. Why should we trust them to tell others how to handle theirs. Maybe we need to have a law passed that says that if the government shutdown because of lack of money we have to have new election to find people who can handle public money better.
    Like (28)
    Follow
    Share
    Yes because they’re the ones are probably bankrupt the company you’re in bankruptcy and then giving them bonuses I don’t think so
    Like (66)
    Follow
    Share
    Why? If you aren’t paying your employees or bills why should execs empty the coffers lining their own pockets? They should get NOTHING! I bet if that president is set there will be quite a change in how organizations approach bankruptcy!
    Like (64)
    Follow
    Share
    I should think that would be obvious. Running a company into the ground and bankrupting it doesn’t deserve a bonus... or a presidency.
    Like (58)
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    Corporations/ Companies Under Bankruptcy ”Executives Bonuses”..... No Way!!! By paying out bonuses to executives while their companies are going through bankruptcy, corporations are effectively rewarding them for running a company into the ground. Rather than giving them bonuses, companies should be focused on securing the livelihoods of their workers while undergoing bankruptcy proceedings. SneakyPete..... 👎🏻👎🏻Bonuses👎🏻👎🏻. 5.30.10.....
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    Yes, bad decisions made by the executives are the ones that put a company into bankruptcy. These individuals need to be held accountable for these decisions. This can be done by making sure all employees payments, including pensions, are paid before executives are paid.
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    Bonuses are generally rewards for performance. If bankrupt, its most likely these highly compensated folks collectively contributed to the failure- and they should, collectively, not be paid bonuses.
    Like (25)
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    The executives are who put them there. They take greedy salaries, lay off people and then reward themselves with a pat on the back and a bonus. If I were to file bankrupts, would I be able to give myself a bonus first?
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    No bonus for mismanagement. But be careful. Never make a rule you cant enforce. They'll find a way around it.
    Like (19)
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    When the CEO and senior leadership run a company into bankruptcy, all bonuses, stock options and golden parachute contracts should be null and void. They should also be made to work for the lowest wage they offer employees while they are in bankruptcy. Why should they be rewarded for negligence?
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    Employees should be paid first.
    Like (16)
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    Companies in bankruptcy must not be allowed to pay bonuses to executives.
    Like (16)
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    Absolutely. No bonuses. No pay increases. No golden parachutes. No doing away with workers pensions.
    Like (16)
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    Of course they should. If you can’t pay your bills or employees you should certainly not be paying yourselves. Crooks.
    Like (13)
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    If a company is in such fiscal distress that they have to file bankruptcy, then they can’t afford to pay their executives huge bonuses to disburse any remaining cash reserves. Quite the opposite! If they have mismanaged their organization to the point of bankruptcy, they have done nothing to deserve a bonus at all.
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    The guy at the top got them into bankruptcy. They should be the last in line for any money!
    Like (10)
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    Intelligent people can agree with something without demanding that it be enforced with theft, violence, or the threat of kidnapping or even death in the face of non compliance. Congress has been failing us for over 100 years and y’all still get paid. Leave the private sector alone.
    Like (9)
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    Cooperate Bankruptcy has become a scam. When a company goes bankrupt top management should lose more than the debtors, workers,
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    If you can't afford to pay your bills, you can't afford bonuses. The fact that this isn't a law already is so corrupt.
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