Feds, creditors call proposed Midway executive bonuses "outrageous," "disingenuous"
The controversies never end at Midway.
The "Mortal Kombat" publisher, already in bankruptcy and attempting to sell assets and stave off creditors, received a beat down in court this week from the government-appointed trustee overseeing the proceedings and the committee of unsecured creditors (basically everyone to whom Midway owes money except majority owner Mark Thomas, who has a secured loan) over its plan to pay bonuses of up to $3.755 million as part of a "key employee incentive plan."
As previously reported, Midway proposed paying bonuses to 29 key employees, five of whom are believed to be officers (top executives), for completion of three key steps:
-Selling the "Mortal Kombat" franchise or submitting a reorganization plan to the court, for which the bonus would be nearly $1.3 million
-Closing the sale of "Mortal Kombat" or getting a reorganization plan approved by the court. Bonus: Nearly $2 million.
The objections of the U.S. trustee and the creditors' committee break down like this:
-Selling "Mortal Kombat" or submitting/completing a reorganization plan are the main jobs of Midway employees now, not something special for which they should be incentivized. In addition, there's no guarantee they'll do a good job of either one. "The second and third milestones are based solely upon the occurrence of events without regard to when the events may take place, or to results obtained," wrote the U.S. trustee, adding, "Senior management should not be paid incentive bonus payments... to perform duties required to be performed by their obligations under the Bankruptcy Code."
-There's no guarantee that employees won't leave for a competitor as soon as they receive their bonuses. Given that potential buyers might condition their purchase on key employees remaining, that's a major problem.
-Even if the bonuses were justified, the amount is "outrageous," as the trustee put it. "The Debtors seek authority to pay bonuses to a selected group of officers and managers which are four hundred percent greater than bonuses paid to the same group in 2008 when the Debtors were not before the Bankruptcy Court," she noted. "Given the current state of the general economy, coupled with historical data related to incentive bonuses paid by these Debtors, the Motion constitutes an outrageous request and is not justified by the facts and circumstances of the case."
The unsecured creditors' committee did some research of its own and found the proposed bonus amounts equally disturbing: "In a survey prepared by the Committee's financial advisor, FTI Consulting, of compensation plans proposed in some twenty comparable bankrupcty cases in recent years, the Proposed Plan is, by far, the richest compensation plan that has been proposed, despite the unusually poor conditions of the current economy."
Of course, it's worth remembering that everyone has incentives. The unsecured creditors, certainly, want Midway to spend as little as possible so that there will be more cash left to pay them back under a restructuring or sale. While some of their criticisms are damning, others aren't 100% fair. The "twenty comparable bankruptcy cases," for instance, don't include any other entertainment or software companies.
Nonetheless, Midway seems to have gotten the message, most likely from talks that occurred before these objections were filed on Friday. A spokesperson tells the Cut Scene that a revised version of the "key employee incentive plan" will be filed tomorrow. We'll find out if the creditors and trustee still have such harsh words come Wednesday, when a hearing is scheduled.
Update: Midway had revised its proposed plan. Details here.
Chris Morris reports on the business and culture of video games and offers analysis of recent events and industry trends.
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"four hundred percent greater than bonuses paid to the same group in 2008 when the Debtors were not before the Bankruptcy Court"
i.e. they're looting...
Posted by: yonder | March 31, 2009 at 05:17 PM
so the economy is awful.. however if the key execs take the first job available out there, and there are jobs out there for key people... who will sell these assets and how much will it cost the bankruptcy court to bring in an agent or liquidator to take care of this mess. Preach preach preach, and leave the the dummies behind to value things..
Nice.
Posted by: anonymous | March 30, 2009 at 04:25 PM