By Joseph Checkler
NEW YORK—A judge on Friday signed off on Borders Group Inc.'s plan to pay executives and other high-level employees more than $6 million in bonuses, after the bookseller worked to satisfy both his concerns and those of the Office of the U.S. Trustee.
Judge Martin Glenn of U.S. Bankruptcy Court in Manhattan said the amended bonus packages, which tie the $6.6 million in payments closer to the financial performance of Borders, were needed so Borders could "maintain its experienced work force."
Earlier this month, Judge Glenn told Borders to satisfy the objections of the U.S. trustee, which had called some of the bonuses a "disguised retention plan for insiders."
Judge Glenn said he will later issue a lengthier written opinion of his rationale. A lawyer for the U.S. Trustee said his objections had been satisfied.
Kasowitz, Benson, Torres & Friedman LLP's Andrew Glenn, a lawyer for Borders and no relation to Martin Glenn, said a layer of incentives was added to the bonuses, including tying the amounts to how much Borders is able to cut its rent costs. For instance, top managers will see higher bonuses if Borders is able to slash its rent by $10 million in both 2011 and 2012.
Other incentives had already been agreed upon, such as rewarding the employees based on how much recovery creditors will receive in Borders' reorganization and how quickly a plan or sale of the company is approved.
"We are pleased with the court's decision," a Borders spokeswoman said. "Borders has made significant progress during the first weeks of its reorganization, and retaining the managers of our core business and key operations is essential to continuing the progress underway for the benefit of all of the company's stakeholders, so that Borders can exit Chapter 11 in short order."
The executive bonuses, which won't be paid unless the company is either sold or reorganized, had called for executives to get up to $7.1 million. That number is now $6.6 million, including as much as $1.5 million to Mike Edwards, chief executive of the company's principal operating unit Borders Inc. The "key employee" retention plan would give director-level employees a total of $933,000. An additional $300,000 could be awarded on a discretionary basis.
Two top executives have resigned in the past two weeks, and 47 corporate employees have voluntarily left since Borders filed for bankruptcy, the company said.
The two executives who left were among 17 eligible for the larger of the two bonus pools, thus allowing Borders to reduce its maximum bonus request by $500,000.
Borders, based in Ann Arbor, Mich., filed for Chapter 11 in February after struggling with increasing competition for its products and the changing ways that today's digital consumer reads books. The company is attempting to reorganize but has begun closing 226 of its 642 stores, and it might close more. When it filed for bankruptcy, Borders had about 16,000 employees, a number that is now down to about 11,000.
Borders, which is looking to either sell itself or reorganize, anticipates being a much smaller bookseller upon its emergence from bankruptcy, projecting its annual sales to decline 28% from 2010 levels to $1.5 billion.
