Second round of Enron bonuses eyed

Meanwhile, 4,500 former workers await meager severance pay

March 11, 2002|By Thomas S. Mulligan | Thomas S. Mulligan,SPECIAL TO THE SUN

NEW YORK - As 4,500 former Enron Corp. workers await meager severance payments, the bankrupt energy company and its creditors are negotiating a new round of "retention bonuses" for the luckier few considered indispensable to keeping Enron running.

The new bonus package was expected to be submitted for approval by Judge Arthur J. Gonzalez in U.S. Bankruptcy Court in New York this week, perhaps as early as today, Enron spokeswoman Karen Denne said.

Few issues in the Enron scandal have raised more hackles than the $55 million in bonuses that the company doled out to about 550 people Nov. 30, two days before filing for bankruptcy.

Critics have made much of the contrast between bonuses of as much as $5 million for certain key employees and the relative pittance for the laid-off workers, many of whom face financial hardship. Gonzalez approved last week an additional $1,100 apiece for the idled workers, on top of initial severance payments of $4,500 each.

Attorneys for the former workers are seeking severance of as much as $30,000 apiece. The issue has been scheduled for a hearing April 2.

Those lawyers and other legal experts also are wondering why Enron and its official creditors committee have not challenged the legitimacy of the first round of retention bonuses.

Such generous payouts, delivered on the brink of a bankruptcy filing, raise at least the suspicion of fraudulent conveyance, or the illegal transfer of assets by an insolvent company, said Elizabeth Warren, bankruptcy law professor at Harvard Business School.

"Why isn't Enron doing something to set aside those pre-bankruptcy transfers?" Warren asked. "Is it because the same management is still in charge?"

At the helm of Enron today is turnaround expert Stephen F. Cooper. Cooper had no previous connection with Enron, but just below him are executives who have spent years there and who received large bonuses Nov. 30. Chief operating officer Jeffrey McMahon, for example, got $1.5 million.

The decision to hand out bonuses was made after the departure of former President Jeffrey K. Skilling and former chief financial officer Andrew S. Fastow.

Cooper, who is negotiating the new bonuses with Enron's creditors committee, was criticized Friday when the Securities and Exchange Commission filed a blistering objection to his being confirmed as interim chief executive.

The SEC said Cooper's proposed $1.3 million employment contract is unduly plush and his past connections with members of the creditors committee pose conflicts of interest.

Enron's attorneys replied that the SEC erroneously relied on an early version of the contract and that a final version filed with the court late Friday addresses many of the agency's concerns.

Nevertheless, the SEC's action places the new retention package under added scrutiny. Enron has not addressed the issue of the Nov. 30 bonuses in court filings.

The rationale for retention bonuses is that they keep critical workers on the job to squeeze the most out of a foundering company's remaining assets.

A big problem with the first round of bonuses - apart from the size - is that they were paid up-front without performance stipulations, said Scott L. Baena, a Miami lawyer representing 700 ex-Enron workers.

Such bonuses, if they make sense at all, ought to be paid only as the recipients achieve designated performance benchmarks, Baena said.

Thomas Mulligan is a reporter for the Los Angeles Times, a Tribune Publishing newspaper.

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