OT - Bankrupt Toys R Us wants to make sure Dave Brandon gets paid

Submitted by Brhino on November 16th, 2017 at 1:34 PM

http://money.cnn.com/2017/11/16/news/companies/toys-r-us-executive-bonu…

 

Toys "R" Us has asked the bankruptcy court for permission to pay $16 million in bonuses to its top executives if the company is able to hit some financial targets during the upcoming holiday shopping season. Among the 17 executives who would get payments is chairman and CEO David Brandon, who joined the company in 2015.

NASA really needs to look into Dave Brandon's ability to fall upwards. If we could harness that kind of energy we'd have a Mars colony up and running by the end of the week.

Comments

4yearsofhoke

November 16th, 2017 at 7:50 PM ^

Unpopular take but the goal of Ch 11 is to reorganize a company to be successful in the future (or liquidate if it's a tire fire). You don't need to be completely out of money to file Ch 11 and many times it is a strategic move. Brandon may have known very well that Toys R Us would have had to restructure when he took the job and if the compensation is performance based than I don't necessarily have a problem with it.

Just because Brandon is an asshat/a shitty AD doesn't make him a bad businessman. He honestly may be a good businessman.

grumbler

November 17th, 2017 at 7:57 AM ^

The goal of Chapter 11 is to distribute the pain of failure somewhat equitably among the company's creditors, while hopefully allowing the company to continue in business.  I have no problem with the company paying these executives their salaries, but I see no reason to take money from the other creditors in order to give bonuses to reward the leadership that led the company into bankruptcy.

Since this is the leadership that set the goals for itself, I am even less willing to condone it.  If the bonueses were for the workers, who didn't have a voice in setting the goals, i'd be more in favor.

Longballs Dong…

November 16th, 2017 at 2:26 PM ^

None of my business or econ classes said "none of it applies in real life."  Some, like every other focus of study on earth, pointed out that the discussion was sometimes in a vaccuum.  Every physics problem you ever worked ignored the drag from air.  I don't know how many times I assumed i was in a vaccuum but in real life, I've only been in a vaccuum once.   Every differential equation removes dozens of variables.  They are laying the ground work and building blocks to understand that real life is complicated.  All of them "apply" they just can't be applied in vaccuums.  Comments like that bother me.  They imply this sense that the world is rigged for certain folks and that logic, morals and ethics can be disregarded because there is no point.  Yes, certain people fall into success (DB is a confimed dildo and yet he gets millions).  But in this case, he was probably brought into Toys R Us to take them bankrupt, trim overhead, emerge from bankruptcy and either sell the company to a PE firm or take it public.  He's doing what the board wanted.  As much of a dick as he is, it's not his fault Toys R Us has sucked for years.  Does he deserve the money?  Well, maybe if it was in his contract.  Shoudl the board have agreed to such a contract, absolutely not (IMO).

 

Jack Hammer

November 16th, 2017 at 2:50 PM ^

Companies pay large bonuses/incentives to key employees to not only drag the carcass through bankruptcy but also stick around through M&As where the employee is nearly certain they will be disposed of after the conclusion of the transaction.  I've been tied up in these and it's not fun.

And from an optics perspective it looks like shit as OP alludes.   Also it takes a certain personality to hang out in a depressing environment of bankruptcy or reorganization.  You have to be able to say some very two-faced, self-serving shit to keep the staff motivated and showing up for work.   Someone with a certain air of douchebaggery.   Someone like, I don't know, DB?

Seth

November 16th, 2017 at 3:10 PM ^

The whole point of bankruptcy is the insolvent person is saying "Look, there's no way I can handle this and I might do something really awful if I'm not relieved of this debt," and that puts them at the mercy of a bankruptcy court (and the company assigned to oversee them. Being in bankruptcy means you need to be removed from making decisions because you suck at it. Your decisions--including your CEO hire--are by definition suspect.

So if they have a bad contract, that's absolutely the kind of thing the bankruptcy court is there to take care of. They're not going by a book--they're also supposed to make moral judgments and ethical judgments about, e.g., don't give the multi-millionaire millions of dollars then liquidate the retirements of 10,000 employees. If you don't want a judge selected by the people telling you where to put your assets, don't ask the people to eat your debt.

So while these things can get really complicated--far more than a headline geared toward making people angry can convey--there is still a very obvious moral action that supercedes the weeds. Other interested parties here might be wealthy too--manufacturers, rich dudes who leased them buildings, etc., and it's a fair argument that a person's previously accumulated wealth shouldn't be used against them. But with bankruptcy, the whole ballgame is money: we don't have enough, so who gets what's left after we sell off all of the assets? When you consider the executives did the most to put their company into bankruptcy, and the people they owe were acting and delivering their goods and services on good faith, it's not THAT hard to say "Yeah, screw the execs." Otherwise bankruptcy becomes just a trick for legal thievery.

Inuyesta

November 16th, 2017 at 5:00 PM ^

Seth’s comment is mostly spot-on for bankruptcy liquidations, but kind of misses the mark for reorganizations like the one Toys R Us is attempting. In these cases, executive bonuses like the one Brandon is gonna get are typically done with the full knowledge and consent of the major creditors. They do it for a couple of reasons, but the major reason is that the executives in place have the best understanding of how the business works, which of its assets or business lines are most valuable and should be retained as part of the reorganized company and which can safely be sold off to provide a cash recovery to creditors. (Creditors care about this kind of thing because most of their recovery will come in the form of equity in the reorganized company, so making sure the company’s assets remain as strong as possible is critical to them). That kind of information could be reverse-engineered by outsiders, but it’s cheaper and easier to just give bonuses to existing executives to make sure they stay on board and keep doing their jobs.

I’m not saying there’s any justice in this, because there isn’t. A lot of people who can’t afford to lose anything will lose everything, and a lot of already-rich people are going to keep getting richer. If you want to see something that will make you immediately either turn into a socialist or want to change careers to get in on the action,, spend some time reading the fee provisions in the debtor-in-possession financing contracts and fee applications submitted by the investment bankers and restructuring advisors in these cases; you will be shocked at how much money can be made from companies that are broke. But bonuses like these really aren’t thievery, at least not any more than everything else in our economy is.

Longballs Dong…

November 16th, 2017 at 6:07 PM ^

I'm not trying to start a debate on Bankruptcy and I'm certainly not trying to defend DB or Toys R Us - they both suck. I only had two points: 1. The world isn't so bad and you shouldn't assume that everything you learned in school is no applicable in life. Like everything, there are some bad people that give everyone/everything a bad reputation. That only leads to hopelessness and blaming the world for our problems. I've never seen a truly motivated, smart person fail to succeed at any company I've ever worked. There is also a lot of luck required to continually succeed. 2. Toys R us hasn't made money in over 5 years. DB was there for 2-3 years. Yes he sucks and I don't understand how he gets these jobs (both dominos and toys are us are owned partially by Bain Capital so I'm sure that helped). It should also be pointed out that the leveraged buyout of Toys R Us will be a losing investment for everyone. The 3 PE firms will lose their entire investment (probably). This isn't a story of a PE firm swooping in, restructuring, cashing out and leaving a wreck behind with a bunch of debt. The bunch of debt part is true, but everyone loses including the PE firms who bought them and the banks that financed the purchase. The workers could lose their jobs too, but that won't be known until BK proceeds. It's possible someone buys them for less, screwing the banks and keep the chain alive.

You Only Live Twice

November 16th, 2017 at 9:33 PM ^

any truly motivated, smart, hardworking people fail....  I have to conclude you have not been around very long.  Happens all the time. All the time.

To your point about workers losing their jobs - almost always in any form of bankruptcy, merger, reorg.  Sometimes companies can use these events to rid themselves of dead weight in the middle management levels but more often, cut frontline staff.

There's a lot of good posts in this thread about how flawed the system is.  Fairness in the business world really does not exist.  The corporatocracy is definitely something that having experienced, makes socialism seem a much more attractive system.

True Blue Grit

November 16th, 2017 at 3:11 PM ^

taken over by PE firms (KKR, Bain Capital, and Vornado) which was the cause of the huge debt burden the company has been unsuccessfully trying to dig itself out of.  Taking itself public again is pretty unlikely.  The PE firms are the ones who brought Brandon in.  His mandate was likely to attempt to reduce costs, help restore the brand name, and increase both online and in store revenue.  Based on what we've all seen, it seems doubtful he'll be able to do that.  But, this holiday season will tell a lot whether this bonus is at all worth it.  

1464

November 16th, 2017 at 3:39 PM ^

So how about the federal government puts protections in to prevent a board dragging a company through bankruptcy, shedding millions in payroll, and still paying the administration out the nose?  Something that disallows raises and bonuses for administrative level employees if bankruptcy is filed?  Something that would... you know.. protect the working class by making it less lucrative to gut a company and put people in the unemployment lines?  Nah.  Our government isn't in place to protect normal people, right?

Don

November 16th, 2017 at 3:53 PM ^

vulture capital firms like Bain borrowing money, using that borrowed money to buy other companies, and then stick the management of those companies—and their employees—with those debt obligations after the VC people get their share and blow town.

Longballs Dong…

November 16th, 2017 at 6:42 PM ^

To be clear, that's not what happened here.  No one is making any money from Toys R Us.  Further, you are over simplifying some things.  Yes, this happens and it's bad.  However, you gloss over the "blow town part."  Blowing town requires a sale of the company either by IPO or private sale.  I assume you are referring to IPO in which case the owners can sell their shares and blow town as you say, but only if the shares have buyers and any holdback period has ended.  If the banks are cooking the books to get those buyers, then that already is illegal.  I know this has happened but PE firms exist and function because they can usually make a business more streamlined/profitable not for the flip and dump model you describe.  They deserve a much worse reputation for the fact that a PE buyout almost certainly means layoffs regardless of need.   

Oregon Trail

November 16th, 2017 at 7:43 PM ^

The Toys R Us bk is happening because, as someone pointed out, a couple PE firms did a leveraged buyout a few years ago that saddled the company with tons of debt. Megadebt.

But if you look at the disclosures, Toys R Us is actually making a ton of money! In fact, the company will be fine going forward (probably), and DB will not get fired--he'll get even more bonuses! Toys R Us just needs to get out from under its debt obligations. Otherwise the fundamentals are totally there.

That said, Dave Brandon tried to ruin our athletic department and he should feel bad about that.

Reader71

November 16th, 2017 at 4:35 PM ^

Why? Chapter 11 exists to allow the organization to restructure while continuing to operate. Being the CEO of a company going through restructuring is a tough job, and no one will take it without reasonable pay. Plus, good decisions during restructuring are just as important as good decisions for someone running a successful company like Apple.

I have no belief that Brandon deserves any bonus or that he makes good decisions, AND I think business execs are the most overpaid and overrated people alive, but CEOs shouldn’t be behind creditors in getting paid. Creditors make every transaction with the possibility of getting stiffed in mind.

Longballs Dong…

November 16th, 2017 at 6:50 PM ^

I tend to think of CEOs like athletes.  Most of them are just role players, a few are transcending and a few are Darkos.  No one gets mad that Darko made $50 million in the NBA and I'm not sure if he ever made a basket.  Like NBA teams, companies tend to take a leap of faith that htey get a superstar and much like players, guys (or gals) in the CEO circle have a lot of power in negotiation.  They are probably already rich so why be bothered with the 80 hour weeks and constant travel?  I'm not saying it's right, but it's supply and demand and negotiation power.  A superstar CEO can make your company a champion or be a huge money suck or just be an annoying dildo. 

You Only Live Twice

November 16th, 2017 at 9:42 PM ^

Why would the buck NOT stop with the person at the top?  They were already paid an inflated salary to screw up a business.

Creditors assume they are going to get stiffed?  So you're saying the equation is already solved ahead of time, and they have already passed on their costs to everyone else, before the debtor skips out on their obligations?

I prefer to think that paying bills is a responsibility that affects everyone in the economy.  One CEO and his or her golden parachute does not.  

 

Reader71

November 17th, 2017 at 8:58 AM ^

Not always true. If a company is run terribly for years, a good CEO can be hired and might not be able to escape the bankruptcy that had been years in the making. Often, a good CEO will be the one to file bankruptcy, in order to restructure the company. It’s not his fault that the company can’t pay its debts, but its to his credit that they are in bankruptcy, which is a tool to improve the company.

Don

November 16th, 2017 at 1:46 PM ^

Those vacation homes in Aspen and Turks & Caicos don't pay for themselves, y'know.

"Bankrupt companies should put execs at the last of the line to get paid"

So much for the principle of "leaders eat last."