Delphi's "Key Employee Compensation Program": What the parties are telling the Court
We've heard a lot in the news about the fight between management and labor in the Delphi case. What gets in front of the Bankruptcy Court, however, is evidence and legal argument, not newspaper stories and press releases.
With a hearing before the Bankruptcy Court on Delphi's Motion to approve its "Key Employee Compensation Program" set for November 29, I thought readers of this blog would appreciate having the opportunity to see exactly what the parties are telling the Court in their filed pleadings.
Click the links to find Delphi's motion in support, the accompanying Watson Wyatt report, and the objections filed by the UAW, the PBGC, JPMorgan Chase (a "limited objection" as agent for 250 senior secured lenders), Wilmington Trust (as indenture trustee), and the Lead Plaintiffs (in the pending shareholder class action).
Bottom line, the proof is in the pudding, and it's hard to see the debtor winning on the measly submissions it has before the Court right now. The UAW appears to have the better side of the law in arguing that the Court should scrutinize the insider compensation plan under the "inherent fairness" standard, not the deferential "business judgment" standard advocated by Delphi's counsel. The UAW also rightly points out that:
Under [BAPCPA's new amendments to the Bankruptcy Code], a retention-type obligation incurred for the benefit of an insider "shall neither be allowed nor paid" absent findings by the court, based upon evidence in the record, that the individual has a job offer at the same or greater rate of compensation, that the services provided by the individual are "essential to the survival of the business" and that the payments meet a strict monetary test.
Although BAPCPA's amendments technically don't apply because Delphi filed before these amendments became effective, it's still a solid argument as they probably represent the proof that a litigator generally would want to introduce anyway under the "inherent fairness" standard governing insider transactions.
Still, while it's common for parties to reach agreement on the eve of trial, it's difficult imagining the unions caving on this one and agreeing to anything. Instead, I suspect, the unions will make the Court cram this one down their throats if the Court really wants management to benefit here (though this too seems unlikely given the weak generalized evidence presently before the Court and the equally shaky legal grounds upon which Delphi relies).
In the end, nothing is guaranteed for the workers being asked to sacrifice and stay, so why should anything be guaranteed to the 500 management employees who are being asked to do the same (other than the fact that they control the debtor's lawyers who are instructed to file these kinds of motions)? But maybe expecting that management will refrain from self-dealing while asking for workers to take severe pay cuts is asking too much of some people.
© Steve Jakubowski 2005
I would like to know and understand how delphi and its key employes can get all these things and yet my retirement fund was delphi stock, i had over 20,000 in 2004, today i have 2,000 for my retirement. What kind of B/S is this?
One way to view it is that the company is pretty deeply insolvent, and creditors are giving up a piece of what they'd otherwise get to keep management there to run the place and maximize creditor recoveries. Unfortunately, stock is just that, stock, and there's no guarantee that stock will retain its value, even for companies that don't go bankrupt. I'm very sorry for your loss, and very much understand how painful it is to see the bottom drop out of your retirement fund. Good luck to you!