(Chapter 11 bankrupt) Weirton Steel offers executives bonuses

Dominion Post ^ | 2003/08/06 | AP

[the_devils_advocate_666]

MORGANTOWN (AP) -- Weirton Steel Corp. has asked a federal bankruptcy judge for permission to offer top executives $4 million in bonuses for staying with the company until it emerges from Chapter 11 bankruptcy protection.

The Northern Panhandle steelmaker last week promoted Chief Financial Officer Mark Kaplan to president and named D. Leonard Wise its new chief executive. Wise, 68, replaced former President and CEO John Walker, who resigned in June.

Kaplan, 41, could get as much as $1.4 million under the plan, including a $600,000 bonus in three installments and $500,000 when the company's reorganization plan is approved or its assets are sold.

Kaplan has the potential to earn an additional $300,000, depending on the value of the company when it emerges from bankruptcy, attorney Mark Freedlander said Tuesday.

Wise's package is worth a potential $1.35 million, including $300,000 in three installments and a $500,000 bonus when the company emerges or is sold. He could receive an additional $550,000 at the end of the process, again depending on the company's value.

Nine other unidentified managers would receive a combined $666,000 in bonuses under the plan, or about half their base salaries. Weirton Steel also wants to create a $625,000 account through which Wise could issue retention bonuses to other employees.

Together, the programs total about $4 million.

[the_devils_advocate_666]

Hmmm, there must be more to this story... or maybe the media just trying to make someone look bad.

[lilylangtree]

Sounds like a bunch scavengers out for silver lining on a bankrupt company. Isn't Weirton Steel owned by its employees?

[CAPPSMADNESS]

I believe that it is employee owned.....

[Recourse]

This is nothing new and is quite common. Enron offered management bonuses as well. If the bankrupt entities do not offer the bonuses, management will simply quit and move on. Then, no one is around to run the company, and the assets deteriorate. The courts almost always approve these because it is in the company's interest to do so, plain and simple. Obviously, skilled laborers and those from a populist bent don't like them, but that's reality.

[GovernmentShrinker]

It is urgently important for a company in bankruptcy to retain its top management, if there is any hope for saving the company (except, obviously, where criminal or incompetent behavior of management is the cause of the bankruptcy). If these exectuives are competent, they'll have other opportunities available to them. If bonuses persuade them to stay, then the employees have a much better chance of keeping their jobs in the long run. When such bonuses are approved by bankruptcy courts, it results in compensation approximating the cost of hiring and replacing comparable replacements.

[the_devils_advocate_666]

So, as I suspected... it is the liberal media trying to put a bad spin on a big business trying to salvage itself. But really, is there any hope for the steel industry in this country? Even with the steel tariffs?

[MightyMouseToSaveThe Day]

These were the guys in charge when the company faced bankruptcy, and they want to reward the same fellas to STAY with the company to lead it out? If they knew how to get OUT of bankruptcy, why didn't they know how to avoid it in the first place? I'm glad i don't own stock in this deservedly poor performing company.

[Mr. Bird]

Might not be that simple. Certainly, you wouldn't want to keep, let alone reward, a bad management team. Not all bankruptcies are the result of mismanagement.

[Tijeras_Slim]

management will simply quit and move on

If this same management presided over the bankrupting of the company, what's the loss?

[DuncanWaring]

If the bankrupt entities do not offer the bonuses, management will simply quit and move on.

I don't see a problem with that.

If these guys couldn't keep what was once a going concern out of bankruptcy, why should anyone think they will be able to bring it back to solvency?

[Recourse]

That's a reasonable question. That's up to the court -- if there are new executives that can be retained to manage the assets at a lower cost, then the court should reject the bonuses. Here's the rub - how many talented executives want to take a temporary position at a bankrupt entity for less than standard pay? Answer - not many.

[Jimmy Valentine]

With all of the skilled managers out there nobody needs to pay a salary/bonus package like this. Let them take their chanvces and reap a reward on the upside.

Vultures

Regards,

[dark_lord]

Here's the rub - how many talented executives want to take a temporary position at a bankrupt entity for less than standard pay? Answer - not many.

Your question begs the assumption that this is, in fact, "standard pay". The answer is -- quite a few. They are called consultants. They come in and get paid for delivering certain results. It may surprise you to know there are a large number of skilled and talented executives out there who "retired", found golf boring, and so work as consultants bailing out companies in trouble. It so happens that there are a bunch of these folks available with skills in the steel industry sector.

[mountaineer]

Your explanation is exactly what was reported here in the Weirton area. Here's the full story from the Wheeling Intelligencer:

Weirton Steel Corp. has asked a federal bankruptcy judge to approve more than $5.5 million in bonuses and incentives for key members of its management team to keep them in place until the company emerges from Chapter 11 bankruptcy.

The company filed three separate motions on Friday in U.S. Bankruptcy Court for the Northern District of West Virginia in Wheeling requesting permission to pay retention bonuses to its two top executives and nine undisclosed key managers, claiming the move is necessary to "maintain continuity in senior management of the company.''

At the top of the list is company President and Chief Financial Officer Mark E. Kaplan, who could receive as much as $1.4 million under the plan, including a $600,000 bonus paid in three installments and $500,000 when the company's reorganization plan is approved or its assets are sold.

New Chief Executive Officer D. Leonard Wise, who replaced John H. Walker this week, could receive as much as $1.35 million, including $300,000 in three installments and a $500,000 bonus when the company emerges or is sold. He could receive an additional $550,000 at the end of the process, again depending on the company's value.

Nine other unidentified managers would receive a combined $666,000 in bonuses under the plan, or about half their base salaries. Weirton Steel also wants to create a $625,000 account through which Wise could issue retention bonuses to other employees. Together, the programs total about $4 million.

Weirton Steel also has proposed a severance plan that would let it cut the nine unidentified managers without cause but pay them salary and benefits for six to 24 months. That could cost as much as $1.6 million. Kaplan also is eligible for severance pay of $350,000.

Weirton Steel spokesman Gregg Warren said paying the bonuses was necessary and that it was the right thing for the company to do. "This is a cheaper way out and better than having a restructuring officer come in,'' he said.

Company bankruptcy attorney Mark Freedlander agreed. "Weirton can't afford not to do it,'' he said, explaining that if certain key managers resigned the best case scenario would mean paying more money out to attract new managers of the caliber needed to bring the company out of bankruptcy, while creating the very real possibility that the company's lenders would bring in a restructuring officer to liquidate the company due to inadequate leadership.

The company's debtor-in-possession financing agreements contain provisions that make it crucial for Kaplan to stay on board now that Walker has left. If both executives had quit, Weirton Steel's lenders could have hired a restructuring officer and sold the company.

"That's probably what played into people's minds more than anything else,'' Freedlander said.

Freedlander further explained that the circumstances that created the need to pay the bonuses were not of Weirton Steel's making. "You never heard anyone say this company got to the position it's in because management was irresponsible,'' he said.

Earlier this year, Walker and Kaplan returned a combined $2.4 million in bonuses they had been offered by the board of directors because they were committed to keeping the company afloat, Freedlander said. "On their own, without anyone asking, they each repaid that money in full,'' he said.

When he resigned, Walker also gave up his right to claim free, lifelong health care and some other costly benefits.

Union officials have been outspoken in opposing such bonuses for months, but ISU spokesman Dave Gossett said members understand that similar bonuses have been paid elsewhere in the steel industry and such practices are common in large corporations.

"I personally feel it's immoral, but apparently, it's a fact of life in big business,'' he said.

In April, workers voted to accept a 5 percent pay cut and forgo a $1 per hour pay raise, Gossett said, "so it's probably going to be hard for them to stomach this.''

Since January, Weirton Steel management has thinned its ranks by 15 percent. Nineteen positions were cut through attrition, and 37 people have been laid off in recent weeks. The total number of management employees is currently 474.