Toys “R” Us has been given the all-clear to pay 17 top executives $16 million in bonuses, so long as the company hits its financial targets during the holiday shopping season.
This decision has been met with a stack of controversy. Arguments were made that the proposed bonuses were excessive and, worse still, that they were actually retention bonuses rather than incentive bonuses, which are not allowed when a company has filed for bankruptcy.
Judy Robbins, the bankruptcy court trustee and a Justice Department attorney representing the interest of creditors, said, “It defies logic and wisdom, not to mention the Bankruptcy Code, that a bankrupt company would now propose further multi-million dollar bonuses for the senior leadership of a company that began the year with employee layoffs and concludes it in the midst of the holiday season in bankruptcy. Apparently, this Christmas, Toys “R” Us intends to deliver not only ‘children their biggest smiles of the year’ but the insiders, too.”
The company has counter-argued that the payments are necessary to get executives to perform at a high level during Toys “R” Us’ 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,” the company said in its filing.
Despite the arguments against it, US Bankruptcy Court Judge Keith Phillips approved the payouts.
If the company ends up achieving greater than expected profit results during the holiday season, the bonus plan could actually end up being as much as $32 million. However, the company has stated that it would find this “very difficult to achieve.”
Toys “R” Us has also filed for an incentive program for other employees beyond the top executives.
Toys “R” Us’ struggle has been a long time coming, fighting to compete against companies such as Amazon (NASDAQ:AMZN), Wal-Mart (NYSE:WMT), and Target (NYSE:TGT). Toys “R” Us lost $330 million in the first half of this year, with sales falling by 5%, and it has lost over $1.8 billion since it last reported an annual profit five years ago.
Featured Image: Depositphotos/© RobHainer
