CEOs who receive bonuses while their companies are on the verge of bankruptcy have drawn the ire of members of Congress who say the payments are unfair to shareholders who can be left with nothing when a company becomes insolvent.
The Government Accountability Office recommends that Congress consider amending the bankruptcy code to clearly define the extent to which companies can provide bonuses before declaring bankruptcy. In a September 30 report, GAO found that of some 7,300 companies that filed for bankruptcy in 2020, 42 awarded executive bonuses shortly before filing. The bonuses, totaling some $ 165 million, ranged from five months to two days before filing for bankruptcy.
While pre-bankruptcy bonuses were a minority among 2020 Chapter 11 bankruptcy cases, the GAO report raises questions about the number of additional business executives who may be looking to take advantage of the so-called plans. key employee incentive, or KEIP, if there is a deeper economic recession.
“Congress should consider amending the U.S. Bankruptcy Code to clearly subject the bonuses debtors pay executives shortly before a bankruptcy filing to bankruptcy court oversight and to specify the factors the courts should consider. account to approve these bonuses, ”GAO wrote.
Senator Elizabeth Warren, D-Mass., Earlier this year targeted former Genesis Healthcare Inc. CEO George Hager Jr., who allegedly received a $ 5.2 million “retention” bonus before leaving the office. nursing service provider in January, even after more than 2,800 of its residents died from COVID-19 and despite leaving Genesis in dire financial straits, she said.
