Delphi Clears Exec Incentive Plan with Bankruptcy Court

February 13, 2005 ( - Even though Delhi Corp's creditors and unions have been fighting the move, a US Bankruptcy Court judge has cleared the way for the company to renew one of its executive bonus programs.

The ruling by US Bankruptcy Judge Robert Drain allows the giant auto parts maker to award up to $21 million in a six-month incentive program – one of two such plans eliminated when Delphi turned to Bankruptcy Court for protection in October, the Associated Press reported (See Delphi Looking for Health and Pension Benefit Freeze ).

Delphi attorney Jack Butler said re-instituting the plan, which would expire June 30, would allow the company to keep important executives through the bankruptcy restructuring process, according to the news report.

However, Drain’s decision also raised the possibility of deepening labor unrest that could lead to a strike. Delphi’s move to reinstate the bonus plan had been roundly criticized by Delphi’s workers, who are up against a Friday deadline to either negotiate steep wage cuts, or face the possibility of having their collective bargaining agreements voided by the bankruptcy court. After that, Delphi could unilaterally impose salary cuts or slash jobs.

Delphi’s timing in reinstituting the plan was soundly attacked by both the court-assigned bankruptcy trustee and Delphi’s unsecured creditors committee, both of whom otherwise supported the plan’s structure and payments. “Our conclusion is that it is not a reasonable exercise of business judgment to go forward with an executive compensation plan one week before a motion (to abrogate collective bargaining) dealing with one of the main issues of this case, which is labor peace,” said Robert Rosenberg, the attorney representing Delphi’s creditors, in the news report.

In his decision, Drain agreed that it would be difficult for union workers to accept executives receiving bonuses while they face wage cuts, but said that both the rank-and-file wage cuts and the incentives for executives helped make Delphi more competitive.

In part, Delphi blamed increasingly high labor and pension costs for its October Chapter 11 filing and a $1.1 billion loss in December. Production cuts at former parent and top customer General Motors Corp. and rising commodity prices also contributed to the company’s bankruptcy.

Steve Grandstaff, head of the union local representing Delphi workers, testified that the dispute over executive bonuses was “a clash of ideals,” and questioned whether bonuses this early in the company’s Chapter 11 reorganization would encourage hard work, or simply allow executives to take more money from a failed company.

Delphi’s lawyers sought to depict union objections as knee-jerk reactions, repeatedly asking union officials testifying whether they knew the details of Delphi’s executive compensation plan, the difficulty in retaining talented executives, or whether the unions would ever support restoring executive bonuses during labor negotiations at the risk of angering rank-and-file union workers.

If the talks break down, there’s a chance that workers at Delphi could strike, which could not only shut down Delphi, but also cripple GM.