Dive Brief:

• J.C. Penney is paying out millions of dollars in performance bonuses to its top executives as its stock nears $0 and the retailer reportedly drifts toward bankruptcy.
• In a recent securities filing, the company said its board had approved changes to its compensation program that include pre-paid cash incentive awards worth a fraction of executives' target variable compensation.
• The amounts include $4.5 million for CEO Jill Soltau and $1 million each for CFO Bill Wafford, Chief Merchant Michelle Wlazlo and Chief Human Resources Officer Brynn Evanson. Most of the awards have to be repaid if the executive is terminated with cause or resigns before January 31, 2021, and 20% must be paid back if the company misses performance goals. The company also accelerated payment of $2.4 million in cash awards based on the company's 2019 performance.

Dive Insight:

Penney said in the filing that changes to the bonus program were made "to enable the Company to retain and continue to motivate its named executive officers... and other employees through the volatile and uncertain environment affecting the retail industry." 

The 2019 bonuses require the executives to stay on until January 2022. The pre-paid bonuses also come with the stipulation that executives must waive their long-term incentive awards for fiscal 2020 and forfeit all other equity and other long-term incentive bonuses for the year. 

The retailer no doubt is trying to hold on to its top executives at a time when their stock bonuses may be worth little — Penney's stock was trading at a little over 20 cents a share at the time of writing — and quite possibly while the company is making a pitch to lenders about its underlying value if the retailer is forced to file for bankruptcy. 

But executive bonuses at times of deep distress can also be a drag on employee morale and generate bad press. Since the COVID-19 crisis hit, J.C. Penney has furloughed huge chunks of its store workforce and corporate staff after closing up its physical footprint. The company has also skipped two interest payments on its debt totaling $29 million and is reported to be near a bankruptcy filing, which could come as early as this week. 

Retailers, and other companies, often pay retention and incentive awards to executives while in bankruptcy, and those bonuses often generate their own headlines and press. Toys R Us, Gymboree and Sears are just a few examples. 

At Toys R Us, bonuses were paid just before bankruptcy (and more was requested during the failed toy retailer's bankruptcy). That money has become one of several points of scrutiny in a lawsuit filed recently in New York by unsecured creditors to Toys R Us, who collectively lost hundreds of millions of dollars in the retailer's liquidation, which came with little warning to outsiders. 

Then-Toys R Us CEO Dave Brandon was warned by its lawyers at Kirkland & Ellis — who are retail bankruptcy specialists also reportedly advising J.C. Penney — that bonuses would be under court scrutiny in Chapter 11, according to the creditors' complaint. The creditors go on to allege that Brandon came up with a plan to pay himself and other executives millions in the days just before Toys R Us filed, including $2.8 million for Brandon.