Executive Compensation in Chapter 11 Bankruptcy Cases
Chairman Conyers Calls for Review of Executive Compensation in Chapter 11 Bankruptcy Cases
(Washington)- Judiciary Committee Chairman John Conyers (D-MI) heard from witnesses at today's Constitution and Administrative Law (CAL) Subcommittee hearing on "Executive Compensation in Chapter 11 Bankruptcy Cases: How Much Is Too Much?" A major concern in Chapter 11 cases is the frequency with which workers and unions are asked to make sacrifices while executives are rewarded.
"There is one heck of a difference between laying off a multimillionaire and a worker who makes $40,000," said Conyers. "You don't see golden parachutes for laid-off workers. Far too often executives emerge comfortably from the Chapter 11 process even after their management led to a company's financial ruin. Many of these corporate leaders have no sense of the devastation they have wrought in our communities.
"CAL Subcommittee Chairwoman Linda Sanchez and I intend to explore in greater depth how Chapter 11 affects workers. I plan on reintroducing legislation to rein in corporate excess such as this."
Rep. Conyers' full hearing statement in the extended entry:
Today's hearing addresses an issue that I believe Congress has long neglected. There are at least three critical reasons why we must examine executive compensation in Chapter 11 cases.
First, all too often and with greater frequency, executives of Chapter 11 debtors receive extravagant multi-million dollar bonus and stock option compensation packages, while regular workers are forced to accept drastic pay cuts or even job losses and while retirees lose hard-won pensions and health benefits.
For example, Glenn Tilton, the CEO of United Airlines, a former Chapter 11 debtor, last year received a $39.7 million compensation package. During the course of the bankruptcy case, however, the pension plans for 120,000 workers were terminated and many others had to make significant wage concessions. It truly is a shame that Mr. Tilton is unable to attend today's hearing as it would have been enlightening to have his explanation of the equitable considerations warranting his compensation.
Unfortunately, Mr. Tilton is not alone. As many of you know, the Ford Motor Company reported a record $12.7 billion loss for last year. But what many of you may not know is that Ford paid $28 million to its new CEO, Alan Mulally, in his first four months on the job. This disclosure comes as companies like Ford, General Motors, and DaimlerChrysler prepare to start negotiations with the unions to obtain concessions and labor cost savings when their current contracts end in September.
Second, the current law -- even after Senator Kennedy's laudable efforts to curb the use of key employee retention bonuses were included as part of the amendments to the Bankruptcy Code in 2005 -- is deficient. Creative practitioners have developed ways around the Code's restrictions. In recognition of the current law's shortcomings, last year I introduced H.R. 5113, the "Fairness and Accountability in Reorganizations Act of 2006,'' to guarantee that workers are treated more fairly by requiring greater oversight and approval of all forms of excessive executive compensation.
Specifically, this simple and effective legislation would have required any executive bonus package to be approved by the bankruptcy court for any corporation undergoing reorganization under Chapter 11.
It also would have required the bankruptcy court to take into account the company's foreign assets before allowing the debtor to break its collective bargaining agreements with its American workers or to modify its retirees' health benefits.
Although this long-overdue legislation was unfortunately not considered in the last Congress, I intend to pursue similar legislation in this Congress.
Third, executive compensation is part of a bigger problem with respect to the rights of workers in Chapter 11 cases. It is my hope that today's hearing will be one of a series that the Subcommittee will conduct on how Chapter 11 impacts on workers, including their rights under collective bargaining agreements and retiree benefits.
Section 1113 of the Bankruptcy Code, for example, allows Chapter 11 debtors to avoid their contractual obligations under collective bargaining agreements with their workers. Indeed, some in the labor community believe that this provision is being used for the specific purpose to bust unions or to at least give companies unfair leverage in its negotiations with unions. Nevertheless, Congress has not considered the treatment of collective bargaining agreements in the context of bankruptcy since 1984, according to the Congressional Research Service
We need to restore the level playing field that the drafters of Chapter 11 originally envisioned and to ensure that workers and retirees receive the fair treatment they have earned when their company is in bankruptcy.
In the last nine years, Congress has gone to great lengths to grant advantages to creditors and big business over ordinary Americans. It is time that we include the interest of working families in the bankruptcy law and consider how we can add a measure of fairness to a playing field that is overwhelmingly tilted against workers.