Last week, Toys ‘R’ Us won U.S. bankruptcy court approval to pay its top 17 executives $14 million in incentive bonuses.
Judge Keith Phillips of the U.S. Bankruptcy Court in Richmond, Va., signed off on the bonuses following lengthy arguments from attorney Lynn Kohen on behalf of the U.S. Trustee’s office, a bankruptcy watchdog, over the timing of the payments given the big-box retailer’s uncertain future.
The RTP team discusses whether it’s ethical for retailers to continue bumping up executives compensation in the face of bankruptcy or even quarterly/annual losses. The editors share how poorly positioned retailers should handle these kind of financial situations, and what efforts should be made to motivate execs of struggling brands.
Debbie Hauss, Editor-in-Chief: I do appreciate the fact that no bonuses will be awarded until the company reaches the targeted goal of $484 million in adjusted earnings. That said, the bonuses are a bit appalling, especially considering sales associates make approximately $9 per hour, translating to less than $23,000 for sales floor team members, according to Glassdoor. At that salary the company’s own employees probably can’t afford to buy any of the most popular toys advertised on the Toys ‘R’ Us “Hot Toy List”, such as the “Paw Patrol Sea Patroller Rescue Vehicle” for $59.99. It’s also disturbing to learn that some Toys ‘R’ Us executives have personal drivers and private planes as well. Never mind the amount of money spent on legal fees paid to make this case in bankruptcy court. The whole thing is just a bit too stomach-turning, particularly when it is happening at one of the biggest companies that is supposed to be helping to make children and families happy during the holiday season.
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Adam Blair, Executive Editor: My knee-jerk reaction to this story would be to say that of course, Toys ‘R’ Us should not reward bad behavior by giving bonuses to top management. After all, the company is in bankruptcy, workers’ jobs are in jeopardy, and if nothing else the optics are terrible. But the situation has more than a few shades of gray. The bonuses will only be awarded if the retailer meets fairly ambitious revenue targets, and in approving them, the bankruptcy court judge noted that none of the company’s creditors or lenders have raised any objections. If Toys ’R’ Us really means to come back from this bankruptcy and operate as a going concern, it’s going to need solid, motivated leaders. These executives could really motivate their managers and workers — the ones that actually have the biggest influence on the company’s success or failure — by putting the bonus money in escrow until the retailer is back on its feet.
Glenn Taylor, Senior Editor: I got a good laugh out of the rationale behind the judge’s ruling, that it was an incentive for them to drive shopper sales and traffic — as if that isn’t an innate part of the job description in the first place. If the bonuses are already guaranteed within a contract and the execs hit them, then there isn’t much that can done after the fact. This scenario has to be something all retailers prepare for, and keep in mind especially if they are having financial trouble. Those at the top are generally going to capture the largest holiday bonuses, the same way many other major businesses operate. But that doesn’t mean these funds can’t be allocated elsewhere during a downturn, especially if companies are at the point of laying off a bunch of employees or cutting costs elsewhere.
Klaudia Tirico, Features Editor: The fact that Toys ‘R’ Us is even thinking about giving bonuses to those who no doubt make a decent salary at a time when the retailer is facing struggles makes me want to laugh…and cry. And sugarcoating it by adding that no one will receive a bonus until a specific earnings goal is made doesn’t really change my opinion. I’m all for motivating employees to work harder with incentives — but $14 million in incentives for executives (not even employees who are on the store floor making the sales!) is a little excessive in my opinion. It all just leaves a bad taste in my mouth.
