Judge Approves $14M Toys"R"Us Executive Bonus Payout
The judge overseeing the Toys"R"Us bankruptcy case ruled Tuesday that the insolvent retailer can pay its 17 top executives $14 million in incentive bonuses. Toys"R"Us, which is based in Wayne, N.J., agreed to trim its original $16 million bonus proposal by $2 million, and to make $5 million of the bonus payout contingent on the company creating a business plan that allows it to emerge from bankruptcy. The company said the bonuses are necessary because they motivate executives to boost sales during the critical holiday shopping season. Bankruptcy Judge Keith Phillips said it was “particularly striking” that none of the creditors or lenders whom Toys"R"Us owes money objected to the plan.
Total Retail's Take: This issue over executive compensation often arises when a retailer is in the midst of a bankruptcy process. The optics of well-paid executives getting bonuses while the company they're responsible for overseeing is cutting jobs and closing stores (although this hasn't been the case for Toys"R"Us) leave a lot to be desired. However, the argument can be made that in order to retain the talent necessary to lead a company through a turnaround and out of bankruptcy, it's going to cost money. Otherwise, fairly or not, execs are likely to jump ship to another job, leaving the retailer in a potentially worse situation. The fair outcome here is for the bonuses to be tied to Toys"R"Us’ financial performance — if the company begins to show signs of a turnaround, then the executives are awarded their bonuses. If it doesn't, then the bonuses go unpaid.