Neiman Marcus is asking a federal bankruptcy court in Texas to allow nearly $ 10 million in salary increases for CEO Geoffroy van Raemdonck and seven other executives as the company goes through debt restructuring.
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The proposed compensation plan covers staff who are “critical to daily operations” and Neiman Marcus’ financial success during the bankruptcy process, according to a court filing.
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Neiman Marcus filed for bankruptcy in May after the coronavirus closed its stores. The Dallas-based clothing store and department store, famous for its excessive vacation catalog offerings, was already preparing for a court-led reorganization of its $ 5 billion debt.
As part of the bankruptcy filing, Neiman Marcus said he has secured $ 675 million in financing from most creditors to continue operating during the restructuring. Those creditors now own more than two-thirds of the company’s debt.
The company said it is evaluating locations, but did not specify whether it would close any stores.
Neiman Marcus’ salary increase plan runs counter to the typical timeline that major companies follow during bankruptcy plans. Typically, a company will issue executive retention bonds and then request a restructuring. JC PenneyHertz and CNG They are three recent examples of this tradition. In fact, a third of more than 40 large companies awarded executive pay bonuses prior to their bankruptcy filings this year, Reuters reported.
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Neiman Marcus must ask a judge to approve his plan because the move violates a rule in the Bankruptcy Reform Act of 2005 that prohibits companies from paying bonuses to executives while they are bankrupt. The compensation plan is now presented to Judge David Jones in the Southern District of Texas in Houston.
Neiman Marcus employs about 13,200 employees, including 9,545 full-time and 3,655 part-time, according to court documents.
Along with eight named executives, Neiman Marcus’ compensation plan covers 17 senior vice presidents, 82 vice presidents, 40 directors, and up to 100 additional key employees identified by the CEO as eligible. The group has seen “a substantial increase in its workloads without a concomitant increase in its compensation,” the company said in the filing.
The filing notes that van Raemdonck gave up his April salary and has cut 25% since May. Other top executives also had their wages reduced by 25% from April.
The company said it faces “severe commercial pressures due to recent challenges in the retail market and, in particular, the unprecedented and unforeseen interruptions to the debtors’ business caused by COVID-19.”
“In light of these pressures and the additional challenges of the Chapter 11 filing, it is critical that debtors implement the KEIP (compensation plan) immediately to ensure that key employees remain with debtors,” the filing said.
The jobs require more intensive negotiations with customers, suppliers and employees to convey a “business as always” message necessary for its restructuring, the company said. The COVID-19 pandemic has “further exacerbated” their jobs and made it more difficult to operate a bankrupt company.
Retaining people who are already familiar with the company’s operations will help preserve it and benefit all those interested in bankruptcy, according to the filing.
Current staff cannot be easily replaced “without negatively affecting operations and bankruptcy,” the filing said, adding that hiring and replacing training would be “difficult and expensive.”
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