Merry-Go-Round pay gets withering review

January 18, 1995|By Jay Hancock | Jay Hancock,Sun Staff Writer

Usually salaries for corporate bosses are discussed in hushed suites, blessed by consultants and ratified by friendly board members. Impolite questions of fairness, merit and "just what does this add up to?" are rare.

Yesterday proved an exception. Three executives of Merry-Go-Round Enterprises Inc. had what must have been the jarring experience of seeing their proposed pay fileted, diced and aired before the world.

Merry-Go-Round, which has been in bankruptcy proceedings for a year, wanted to pay six-figure severance packages to Michael Sullivan, its former president, and Ken Rodriguez, former president of its Cignal division. The Joppa-based fashion chain also wanted to pay a bonus of up to $50,000 and award an employment contract to Isaac Kaufman, its executive vice president.

Some of the company's creditors, who scrutinize every dollar that the unprofitable Merry-Go-Round spends, felt that the executives didn't deserve the money. Yesterday, at a hearing in U.S. Bankruptcy Court in Baltimore, their lawyers weren't shy about saying so.

"It is not easy objecting to compensation arrangements for an officer of a company," said Thomas Biron, an attorney for Merry-Go- Round's creditors committee. "But somebody at the company has to be responsible for the reversals at the company."

U.S. Bankruptcy Judge E. Stephen Derby ended up giving the executives most of what the company had proposed.

But meanwhile the hearing had become, by turns, a stage for lawyers to demonstrate their pugnaciousness and a daylong seminar on stock options, vacation pay, health insurance and car allowances.

At one point, shareholder lawyer Stephan Selbst gave his pen to Thomas Shull, Merry-Go-Round's new president, and forced Mr.

Shull to add up several disputed items, as Mr. Selbst dictated, in Mr. Sullivan's pay package.

Mr. Biron called the Merry-Go-Round executive vice president to the witness stand with one purpose: To make Mr. Kaufman recite Merry-Go-Round's decrease in cash reserves over the last year -- a figure, $45 million, that both men were painfully familiar with.

Several lawyers objected to what they said was a last-minute attempt by Merry-Go-Round to add new items to the packages, including health coverage for Mr. Sullivan until he reaches age 65, in 10 years. Merry-Go-Round lawyers argued that the items were minor and routine in any severance plan.

Judge Derby was uncertain about stock options held by Mr. Sullivan and Mr. Rodriguez, who left Merry-Go-Round in November. How much were they worth? The answer: not much.

One lawyer wanted to know the value of the car being given to Mr. Sullivan. About $12,000, was the reply.

What about Mr. Sullivan's pay for five weeks -- $38,000 -- of untaken vacation? Was that normal for a top executive? Absolutely, said the company. Irregular, said creditors' attorneys.

Mr. Sullivan, Mr. Rodriguez and Mr. Kaufman, seated in the gallery, occasionally shook their heads in silent disagreement with the assertions of opponents' lawyers.

Pre-hearing negotiations had already reduced Mr. Sullivan's proposed severance from up to almost two years' pay -- more than $750,000 -- to up to one year's pay -- $415,000 -- plus benefits. Merry-Go-Round officials argued yesterday that he deserved the money because it was within the bounds of normal severance and because he built the company into a national chain.

Lawyers for the creditors committee and creditor Bear, Stearns & Co. wanted to shrink the parachute, arguing that Mr. Sullivan had no employment contract with Merry-Go-Round and that he was largely responsible for its bankruptcy and continued losses.

Judge Derby's decision: approval of one year's severance for Mr. Sullivan and Mr. Rodriguez, and approval of Mr. Kaufman's employment contract and possible bonus.

But Judge Derby disallowed Mr. Sullivan's extended health insurance.

And he pooled part of Mr. Sullivan's and Mr. Rodriguez's vacation pay and other severance with claims made by other creditors, meaning the two probably won't be paid fully in cash for those items.

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