An official 30-page objection was filed by the unsecured creditors in the Cumulus bankruptcy case regarding millions of dollars in bonuses the company wants to pay out to CEO Mary Berner, CFO John Abbot, General Counsel Richard Denning and Westwood One President Suzanne Grimes.
The creditors say if Cumulus prevails, this will result in the unsecured creditors receiving pennies on the dollar and these executives have already received millions in prepetition “incentive” compensation payments.
This filing has nothing to do with bonuses that will be paid out to the rank-and-file Cumulus employees, which will go ahead as planned, according to the company.
This latest objection by the unsecured creditors states these executives have already received millions in prepetition “incentive” compensation payments, that CEO Mary Berner has already received over two million dollars in supplemental 2017 incentive payments, and that the executives are scheduled to receive an additional (Dollar amount redacted) if the motion is approved, and stand to benefit from a very robust Management Incentive Plan to be implemented upon Cumulus’ emergence from bankruptcy. The creditors claim the company is attempting to give these four executives a second ‘bite at the apple’ when original financial targets were missed.
The creditors also say that Cumulus is seeking to implement not one, but two allegedly incentivizing and wholly overlapping programs that both contemplate quarterly cash payments payable upon achievement of the exact same targets and metrics in order to “properly incentivize” those members of management who already stand to gain a substantial economic benefit from obtaining confirmation of the plan and thus implementation of the MIP. “For the reasons set forth in this objection, the payments contemplated by the Executive Compensation Plans are neither incentivizing nor appropriate given the posture of these cases and the retentive nature of the plans themselves and, accordingly, the motion should be denied as to the Executive Compensation Plans.”
The unsecured creditors state that the insider payments contemplated by the Executive Compensation Plans are clearly retentive in nature, and cannot be approved under section 503(c)(1). “In reviewing proposed compensation plans, bankruptcy courts look beyond the label of the program as incentivizing or retentive and assess the circumstances under which the proposal is made and the structure of the compensation package.”
The filing goes on to say that because participants in the Executive Compensation Plans are not required to return any payments in the event that the annual EBITDA target is not met, it is difficult to see how the participants are truly incentivized to achieve the EBITDA target given that there are no penalties for poor performance in subsequent quarters. For all of these reasons, the Executive Compensation Plans are disguised retention plans despite the Debtors’ assertions to the contrary.
