Merry-Go-Round Enterprises Inc. gained court approval of salary packages for two new top executives yesterday and has developed a plan that would pay annual bonuses of up to 35 percent to keep some middle-level managers from leaving.
One of the ironies of bankruptcy is that managers of an unsuccessful company often end up getting raises when it tries to reorganize. That's because companies in Chapter 11 proceedings often offer bonuses and other incentives to prevent key talent from resigning and making a bad situation worse.
In Merry-Go-Round's case, more than 400 district managers, buyers, department heads, vice presidents and other middle managers would receive annual bonuses of between 10 percent and 15 percent of their salaries if they stay with the company until it emerges from bankruptcy. The bonuses could rise to between 15 percent and 35 percent, depending on the employees' positions and whether certain companywide financial targets are met.
The risk that Merry-Go-Round's best managers will leave is real, said Mark Millman, head of Millman Search Group Inc., a retail executive-placement firm based in Baltimore.
"All the headhunters in the country are going after Merry-Go-Round," he said. "There are good people in Merry-Go-Round."
The company has asked Judge E. Stephen Derby of the U.S. Bankruptcy Court in Baltimore to approve the bonuses, which are expected to cost between $2.6 million and $3.5 million annually.
Judge Derby yesterday approved an annual salary of $275,000, with a possible bonus of up to 40 percent, for Lou Spagna, hired several months ago as president of more than 500 Dejaiz and Chess King stores. He also approved a salary of $325,000 and possible bonus of up to 40 percent for Frank Tworecke, hired as president of the company's 500 Merry-Go-Round stores.
Those salaries aren't out of line for the industry, Mr. Millman said.
Merry-Go-Round, a 1,300-store fashion chain based in Joppa, took protection from creditors under Chapter 11 of federal bankruptcy law in January.