Neiman Marcus is asking a federal bankruptcy court in Texas to allow almost $10 million in pay raises for CEO Geoffroy van Raemdonck and seven other executives as the company goes through debt restructuring.
The proposed compensation plan covers staff who are “critical to day-to-day operations” and Neiman Marcus’ financial success during the bankruptcy process, according to a court filing.
Neiman Marcus filed for bankruptcy protection in May after the coronavirus closed its stores. The Dallas-based clothing and department store famous for its over-the-top holiday catalog offerings was already preparing for a court-led reorganization of its $5 billion of debt.
As part of the bankruptcy filing, Neiman Marcus said it has secured $675 million in financing from a majority of creditors to keep operating during the restructuring. Those creditors now hold over two-thirds of the company’s debt.
The company said it is evaluating locations, but did not specify if it would close any stores.
Neiman Marcus’ pay raise plan goes against the typical timeline major companies follow during bankruptcy plans. Usually a company will give executive retention bonuses then file for restructuring. J.C. Penney, Hertz and GNC are three recent examples of this tradition. In fact, a third of more than 40 large companies gave executive pay bonuses before their bankruptcy filings this year, Reuters reported.
Neiman Marcus must ask a judge to approve its plan because the move violates a 2005 Bankruptcy Reform Act rule that bans companies from paying executives bonuses while in bankruptcy. The compensation plan now goes before Judge David Jones in the Southern District of Texas in Houston.
Neiman Marcus employs about 13,200 employees, including 9,545 full-time and 3,655 part-time, according to court documents.
Along with eight named executives, the Neiman Marcus compensation plan covers 17 senior vice presidents, 82 vice presidents, 40 directors and up to 100 additional key employees identified by the CEO as eligible. The group has seen “a substantial increase in their workloads without any concomitant increase in their compensation,” the company said in the filing.
The filing notes that van Raemdonck waived his April salary and has taken a 25% cut since May. Other top executives also had their salaries cut 25% starting in April.
The company said it faces “severe business pressures due to recent challenges in the retail market and in particular the unprecedented and unforeseen disruptions to the debtors’ business caused by COVID-19.”
“In light of these pressures and the additional challenges of the Chapter 11 filing, it is critical that the debtors implement the KEIP (compensation plan) immediately to ensure that key employees remain with the debtors,” the filing said.
The jobs require more intense negotiations with customers, vendors and employees to convey a “business as usual” message needed for its restructuring, the company said. The COVID-19 pandemic has “further exacerbated” their jobs and made it more difficult to operate a company in bankruptcy.
Retaining people already familiar with the company’s operations will help preserve it and benefit all stakeholders of the bankruptcy, the filing said.
The current staff can’t be easily replaced “without adversely affecting the operations and the bankruptcy,” the filing said, adding that hiring and training replacements would be “difficult and costly.”
