Visteon judge rejects insider bonuses, approves incentives for lower managers

Visteon judge rejects bonuses for top officers

WILMINGTON, Del. — A Delaware bankruptcy judge on Wednesday rejected a request by auto parts supplier Visteon Corp. to approve bonuses of up to $8.1 million for its 12 top officers.

But following a hearing, Judge Christopher Sontchi did approve up to $3.3 million in long-term incentives for 83 other Visteon managers, a group that does not include any of the 12 insiders who developed the two bonus proposals.

The ruling came after Michigan-based Visteon last month responded to objections to its proposal to pay up to $80 million through three bonus plans to more than 2,500 employees by replacing it with a scaled-down, $11.4 million plan targeted at only 95 officers and managers.

But the U.S. trustee, the United Auto Workers and International Union of Electrical Workers filed objections to the new proposal, contending that the “key employee incentive plan” for the 12 top officers was a disguised retention plan without true performance benchmarks.

“We don’t need to shovel extra money at these already well-paid executives to get them to do their jobs,” UAW attorney Peter DeChiara argued Wednesday.

The judge agreed that the two performance metrics that would trigger bonuses under the KEIP did not meet the standards required to justify the payments.

The KEIP payments would have been triggered by Visteon’s emergence from bankruptcy, and by adjusted earnings before income taxes, depreciation and amortization, or EBIDTA, of $112.6 million for the second half of 2009, a figure Visteon already is well on the way to meeting.

Visteon, the top supplier to and a former subsidiary of Ford Motor Co., filed for Chapter 11 bankruptcy protection in May after automakers cut production and revenues plunged. The company has said it has presented a business plan to key constituents, including term loan lenders, unsecured creditors and Ford, which has pledged at least $125 million in financing. General Motors also is part of a group of automakers considering acting as debtor-in-possession lenders for Visteon, which has indicated that it could file a Chapter 11 plan by Nov. 2.

Sontchi said that while bonus payments in other cases have been allowed upon confirmation of a reorganization plan, such bonus plans typically include additional criteria, such as meeting specific timelines or obtaining certain recoveries for stakeholders. Visteon’s emergence metric had no such requirements.

“I don’t think there’s any question it’s a retention piece,” the judge said. “It’s designed to retain these employees until a plan is confirmed.”

Sontchi also took issue with Visteon’s EBIDTA target, saying such targets can’t be so easy “that they in effect are softballs that can easily be hit.”

Visteon Chief Financial Officer William Quigley, who helped develop the KEIP plan and stood to receive a bonus of up to $630,000 if it was approved, testified that the $112.6 million was a “challenging” target. He acknowledged, however, that the $50 million in EBIDTA recorded for July and August put the company about $22 million ahead of projections.

While denying the KEIP plan, Sontchi said Visteon would be allowed to submit another plan with a revised EBIDTA goal and “try to talk me into the fact that it’s actually incentive based.”

“It’s a close call,” the judge said in rejecting the EBIDTA target. “It’s a troubled industry.”

But DeChiara noted that the bonuses were being proposed at a time when Visteon wants court approval to terminate retiree health care and life insurance benefits for thousands of current and former workers. The company has said the benefits represent a liability of about $310 million and projected cash costs of $31 million this year alone.

DeChiara’s argument was not lost on Sontchi, who told Visteon attorney Marc Kieselstein that the amount of annual bonuses the company had paid before filing for bankruptcy was equal to the amount it now says it needs to save this year by eliminating the retiree benefits.

“One’s a cost item that doesn’t have a countervailing revenue impact,” Kieselstein replied.