Topic: Discussion Post
Paper details:
This assignment hits close to home for many local students. Read the Legal/Ethic Challenge at the end of Chapter 5 in the textbook, Should Senior Executives Receive Bonuses for Navigating a Company Through Bankruptcy. Use the questions in following the case to form your initial post. Your initial posting should be at least 250 words.
LEGAL/ETHICAL CHALLENGE
Should Senior Executives Receive Bonuses for Navigating a Company through Bankruptcy?
Consider the case of Sears Holdings, which filed for bankruptcy protection in October 2018. The company closed several hundred stores in recent years and cut over 50,000 jobs between January 2017 and March 2018.125 Still, Sears sought and received approval to pay up to $25.3 million in bonuses for key executives and other employees.126 Does this seem appropriate from a justice or expectancy theory perspective?
A federal law was established in 2005 to restrict companies from paying bonuses to executives before and during a bankruptcy process. The law does allow for companies to dole out executive bonuses while simultaneously seeking bankruptcy protection, but only in cases where companies are seeking to rebound and could thus be irreparably harmed by the loss of key executives.
127 In the case of Sears, a judge ruled that the bonuses were legal because they were tied to the company meeting specific financial milestones.
128 U.S. bankruptcy trustee William Harrington formally objected to the bonus proposal saying that “the bonuses do not feel like an effort to retain top talent through a difficult period, but a final extraction of cash before the ship sinks.”129
The practice of giving bonuses to senior executives who navigate a company through bankruptcy is quite common. A Wall Street Journal study of 12 of the 100 biggest corporate bankruptcies revealed that CEOs from these firms were paid more than $350 million in various forms of compensation.
“Over the past few years, fights have erupted during a handful of Chapter 11 bankruptcy cases,” the newspaper reported. “The central argument has been over whether companies are adhering to federal laws when giving their executives the extra pay.”
While judicial decisions regarding this issue have been mixed, consider the ethics of paying executives large bonuses when laying off workers, closing plants, and eliminating health care and retirement benefits to retirees.130 Does this seem fair or just?
Finding Answers to Solve the Challenge
Is it ethical to pay these bonuses? Respond to each of the following options.
Yes. Navigating a company through bankruptcy is hard work and requires hard decisions. Executives at Sears, for example, are expected to earn those bonuses by staying with the company to shepherd it through tough times, helping to turn it around.
Yes, if all employees receive some sort of bonus for staying through a bankruptcy process. In other words, executives should be paid the same as other surviving employees. If everyone took a 10 percent pay cut or gets a 10 percent bonus, so should executives. What’s fair for one is fair for all.
Absolutely not. It just is not right to close stores, displace employees, and eliminate retirement benefits while simultaneously giving executives hefty bonuses.
What is your ideal resolution to the challenge?
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