(Bloomberg) -- Hertz Global Holdings Inc. must change its plan to pay 14 top executives up to $5.4 million in bonuses if it wants win approval for the incentive program, says the judge overseeing the car renter’s bankruptcy.
Judge Mary Walrath sided with opponents of the payouts, who argued that the bonus program comes too soon after $16.2 million in retention money Hertz agreed to hand out to about 340 employees just days before it filed for bankruptcy in May. Walrath’s order also nixed a new plan that would have split as much as $9.2 million among about 295 lower-ranking managers.
“It seems offensive to give senior executives bonuses” when some of them got retention payments immediately before Hertz headed for court, Walrath said in a hearing held by telephone on Thursday.
Under the pre-bankruptcy retention plan, Chief Executive Officer Paul Stone received $700,000. With the new plan, Stone could have collected as much as $1.6 million.
The U.S. Bankruptcy Code restricts bonus payments to top executives, in part by requiring them to be tied to performance goals. Retention payments are allowed, but have tighter restrictions that make them harder to justify.
Congress wrote the rules to ensure managers who drove a company into bankruptcy were not rewarded for staying around during a Chapter 11 case, Walrath said.
“More has to be done to show why employees who got retention bonuses and agreed to stay with the company are not going to do their best to see that the company survives and succeeds,” Walrath said.
Representatives for the company, based in Estero, Florida, didn’t immediately return an email seeking comment.
The judge will consider approving the bonuses if the company either submits better information to justify the payments, or revises the financial and business targets that Hertz must hit for the employees to get paid.
A “relatively large percentage” of the employees who would be eligible for the new bonus program also got retention bonuses, Hertz bankruptcy attorney Jason Zakia said during the hearing.
As part of the original deal, employees agreed to forgo their 2020 bonuses, Bloomberg Law previously reported. The new bonuses “are in reality the 2020 bonuses under a different name,” the U.S. Trustee has said.
A group of retired Hertz executives, including former general counsel Paul M. Tschirhart, and the U.S. Trustee’s Office argued that the program doesn’t meet the legal standards for paying bonuses in bankruptcy.
The case is Hertz Corp. 20-11218, U.S. Bankruptcy Court, District of Delaware (Wilmington)