Kannapolis, NC, Sept. 11--With a court date scheduled for Friday, opposition is mounting to Pillowtex Corp.'s plans to pay millions of dollars in bonuses to top executives and other managers who are liquidating the company, according to the Charlotte Observer.
In bankruptcy court filings in the last week, Pillowtex's workers union, some of its creditors, former workers and the director of the Cabarrus County Department of Social Services objected to the company's plan. DSS Director Jim Cook called it "utterly unjust" and "reprehensible."
Pillowtex, seeking to keep 143 workers, says the payments are needed to ensure it collects the most money possible as it sells assets. That income will be used to repay banks and, potentially, other creditors.
In July, the Kannapolis-based maker of sheets and towels said it was shutting down, filing for bankruptcy and laying off 7,650 workers, including about 4,800 in North Carolina. It's the biggest mass layoff in state history.
Retention plans for key employees are common in bankruptcies when companies plan to reorganize, but experts disagree on whether they're common in liquidations.
Pillowtex's plan has the approval of its senior lenders, which include Bank of America Corp. and Wachovia Corp.
Opposition to the payment plan includes people who say they're appalled by the idea of executives receiving bonuses while former workers struggle, as well as those who object that the plan is unnecessary and fails to tie pay to performance.
A bankruptcy judge is scheduled to hear the matter Friday in Wilmington, DE, and will consider whether creditors will benefit from the payment of bonuses and whether Pillowtex is exercising sound business judgment in proposing the plan.
In a letter made public Wednesday, Cook said the bonus plan "comes from a callous hog-in-trough mentality, rather than from any sense of decency, responsibility and sound business practice."
Cook's agency is helping many of the 3,000 former Pillowtex workers and their families in the county get aid. He suggested the retention and bonus money instead go to those people.
It is absurd to reward the remaining employees, Cook wrote, especially top executives "in line to receive the most gluttonous bonuses."
Pillowtex spokeswoman Karen Cobb declined to comment on Cook's letter.
According to the plan, the two most-important executives would receive 82 percent of their annual salary, or at least $287,000 each. That's based on the salaries of the company's top two executives, CEO Michael Gannaway and President Mike Harmon.
Most other bonuses are far less.
The company could pay a total of $4.1 million in retention bonuses, plus $1.2 million or more in incentive-based bonuses to a group of 29 employees.
In a court filing Monday, a committee of unsecured creditors that includes Parkdale Mills and DuPont Textiles & Interiors said the plan is unnecessary. Among other arguments, the committee says that Pillowtex is "seeking to reward employees for simply being there."
Experts disagree on whether such plans are routine. Duke University business professor Michael Bradley said they are not, but two bankruptcy experts contacted Wednesday said bonus plans in liquidations are not uncommon.
Maintaining key contacts with customers to sell inventory and collect money owed in a liquidation is important, but sometimes companies are overly generous in determining who is key, said John Sumner, a director with TRG Inc., a crisis management firm.
Sam McNeil of River Capital Advisers says liquidated companies such as Service Merchandise Co. paid bonuses to key employees during bankruptcy.
"If the company doesn't maintain at least a skeletal crew to tend to the assets, the assets will deteriorate quickly."
