A U.S. Bankruptcy Court judge has signed off on Sears’ request to give top executives up to $25.3 million in bonuses, even as the company reported nearly $1.9 billion in losses during the first three quarters of 2018, according to the Chicago Tribune. The retailer claimed that the bonuses are needed to keep key executives around during restructuring efforts.
Up to $8.4 million would be divided up between 19 executives if Sears manages to reach certain financial targets within the next six months, or if the company is on track to hit these targets when it is sold. Another $16.9 million has been set aside as retention bonuses for 315 senior employees , each of whom could receive a cash award equivalent to 30% to 40% of their annual salary.
Additionally, since filing for bankruptcy in October, Sears has raised base salaries for certain executives — including the three who formed the Office of the Chief Executive after CEO Edward Lampert’s departure. The company claimed it has already “suffered significant employee attrition,” including the departure of the Sears Home Services COO and five other employees who would have been eligible for bonuses, according to a court filing.
The bonuses have become a point of contention, especially as the company prepares to shutter 182 stores in the coming months. While bonuses at companies in bankruptcy have been receiving more scrutiny in recent years, they have “become fairly typical” for companies that show they have good reason for incentives and are at risk of losing key employees, according to Craig Barbarosh, a Partner at law firm Katten Muchin Rosenman.
Toys ‘R’ Us reached a similar deal in December 2017, receiving permission to pay its top 17 executives $14 million in incentive bonuses. The judge ruled that the bonuses would encourage executives to drive sales during the holiday season, and noted that none of the retailer’s creditors or lenders objected to the spending.
Though Sears has secured $350 million to continue operating through the 2018 holiday season, the venerable retailer may not remain in existence for long after that. Sears has reportedly hired real estate firm Jones Lang LaSalle to market its remaining portfolio of approximately 500 U.S. Sears and Kmart stores. The retailer already may have attracted several interested bidders, including Burlington Stores, At Home, DICK’S Sporting Goods and U-Haul.
Even if a sale to one of these retailers falls through, the company’s days may be numbered: more than half of Sears’ $1.9 billion in losses this year occurred in Q3, despite a 4.3% rise in same-store sales. Even that positive sign was “driven by liquidation sales in the stores that were announced for closure,” according to a regulatory filing.
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