United States Trustee William Harrington has filed an objection with the bankruptcy court over Cumulus’ plan to pay out millions of dollars in bonuses while the company is in Chapter 11. And while Harrington is objecting to all of the bonuses being paid out, the objection will not impact a plan to pay out bonuses previously approved by the court on February 8, to hundreds of employees.
Harrington says Cumulus failed to show that the proposed bonus payments comply with the Bankruptcy Code. He says Cumulus is asking for approval to pay out the bonuses for targets that were obtained before the bankruptcy was filed and Cumulus failed to show the court, creditors and The Trustee whether the goals that were met were even that challenging.
The Trustee says the plans cover 574 full time employees. He says their job titles are not disclosed. Cumulus is hoping to pay bonuses out to market managers, sales managers and programmers, both at the parent company and Westwood One. Here are how the bonus plans are detailed in the court filing…
Performance targets if Cumulus hits $210 Million in EBITDA in 2017 and $236 million in EBITDA in 2018. Cumulus estimates the 2017 payments may range between $8,640,000 and $9,610,000. Cumulus also that if they achieve budgeted targets for 2018, the first and second quarterly payouts under the 2018 Incentive Compensation Plans will be about $10,810,000.
Cumulus is also asking for Executive Plan payments earned in 2017, as well as approval of the Executive Plans for 2018. Cumulus estimates 2017 payments under the Executive Plans will be between $4.2 million and $4.8 million for 2017 and, if budgeted targets are achieved, $3.51 million for the first and second quarters of 2018. The executive payouts are for 11 people but only six are identified according to The Trustee.
Harrington says the Bankruptcy Code allows for administrative expenses “for actual, necessary costs and expenses of preserving a debtor’s bankruptcy estate.” “The two general overriding policies of Section 503 of the Bankruptcy Code are: to preserve the value of the estate for the benefit of its creditors and to prevent the unjust enrichment of the insiders of the estate at the expense of its creditors.”
Harrington says Cumulus has failed to satisfy their evidentiary burden to demonstrate the Incentive Plans are Incentive Plans. “The law is clear that the burden is on the Debtors to either show that the proposed plans comply with the requirements of section 503(c)(1) or that they are not disguised retention plans. Retention plans usually are intended “to encourage certain crucial employees to remain with the company through a critical, transitional time period when the exact future of the company is unclear and when those employees would be most likely to search for other employment. Although the Debtors style the plans as incentive plans, they fail to satisfy the stringent criteria that it is not merely retentive. It is the substance of how and why the proposed payments are made, not the label put on the plan, that is determinative.”
** This story was updated at 11:30 a.m. Wednesday morning to note that the compensation to be paid out to employees, approved by the court in February, will continue to be paid.