Hertz paid $ 16 million in bonuses to top executives before filing for bankruptcy

Retention bonus are typical of bankrupt companies that want to prevent their management from abandoning the ship. But they are always troublesome: the company cannot pay its employees or its debts to lenders, but it prioritizes payments to its already well-paid bosses.
Hertz (HTZ) paid 340 executives a total of $ 16.2 million on May 19 as part of a plan to keep them in place as the company tries to reorganize, the company said in a filing with the Securities and Exchange Commission. Executives will have to return the money if they leave Hertz on their own before March 31, 2021.

Paul Stone, who was just promoted to CEO three days before the retention bonus award, got $ 700,000 under the plan. Chief Financial Officer Jamere Jackson received $ 600,000, while Chief Marketing Officer Jodi Allen received approximately $ 190,000.

The company did not respond to a request for comment, but said in its SEC filing that the payments are justified by the financial and operational uncertainty the company and its employees face. Hertz also said the payments were necessary because of the substantial additional efforts undertaken by key company employees with a reduced workforce, and the risk to the company if key employees decide to leave.

However, paying executive bonuses is not a good idea. The car rental company has laid off 14,300 of its employees since April 14, nearly half of its staff. Hertz is serious financial problems that were exacerbated by the dive into air travel in recent months due to the coronavirus pandemic.

More job cuts are likely to come at Hertz. On Friday evening, the company’s press release said it planned to shut down an undisclosed number of its sites away from airports. It had 2,600 such locations in the United States last year.

Bankruptcy law makes it difficult for companies that have declared bankruptcy to pay severance pay to employees who lose their jobs after filing for bankruptcy. Hertz filed a petition in bankruptcy court for permission to continue to pay severance pay to employees who were released prior to the filing.

Hertz still owes about $ 4,300 on average in severance pay to 2,500 employees, or just under $ 11 million in total. He said paying that severance pay would maintain goodwill with employees, reduce the risk of litigation and make it easier for some of those employees to rehire back to normal travel levels.

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