Stores Closed and Jobs Cut During Toys “R” Us Bankruptcy
The Toys “R” Us bankruptcy is not stopping the company from potentially paying big bonuses to its executives, with a judge ruling that setting aside $16.0 million in performance bonuses for 17 executives was a reasonable decision for the insolvent company.
Since Toys “R” Us, Inc. filed for bankruptcy in September, the company has had to make many of its financial decisions via the court to ensure that it is making the best decisions for its creditors. The company currently holds about $5.0 billion in debt.
The decision to pay these executives exorbitant bonuses while the company flounders did not sit well with everyone.
The bankruptcy court trustee, Judy Robbins, a Department of Justice attorney who represents the interest of creditors, argued that the performance bonuses were actually not performance bonuses at all, but rather retention pay to keep the executives from leaving the sinking company. While performance bonuses are allowed during bankruptcy proceedings, retention bonuses are not.
“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,” wrote Robbins. “Apparently, this Christmas, Toys “R” Us intends to deliver not only ‘children their biggest smiles of the year’ but the insiders, too.”
The company, for its part, argued that it would be difficult to motivate its executives to perform during the Toys “R” Us bankruptcy without the proposed bonuses. “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,” wrote Toys “R” Us in a filing.
To make matters worse, the bankruptcy has led to store closings and hundreds of layoffs across the country while the executives see fit to pay themselves multi-million-dollar bonuses, a situation that speaks to the state of inequality in the United States.
The new bonuses are being offered in addition to $8.2 million in retention bonuses that were paid to executives before the Toys “R” Us bankruptcy was filed. If executives leave the company within a year of receiving the retention bonuses, they will have to pay the money back.
The court approved the company’s plan to pay out a total of $32.0 million in bonuses should Toys “R” Us hit better-than-expected profit targets. The company, however, has said that these targets will be “very difficult to achieve.”
At the time of its bankruptcy filing, Toys “R” Us reported that it had 1,600 stores and 65,000 employees. It has, however, been hiring additional seasonal workers to help with its all-important holiday sales. The company said that it makes nearly 40% of its net sales during the fourth quarter, which encompasses the holidays.
So far, 2017 has not been kind to the toy and game retailer. It lost $330.0 million in the first half of the year, due to a five percent decrease in sales. It has lost more than $1.8 billion since the last time it reported an annual profit, which was five years ago.
“Bankrupt Toys “R” Us wins OK to pay $16 million in executive bonuses,” CNN, December 6, 2017.
“Bankrupt Toys R Us execs could still get up to $21 million in holiday bonuses,” Fox Business, December 6, 2017.