Delphi told to cut exec bonuses

Judge orders compensation package reduced by more than $70M as part of bankruptcy exit plan.

David Shepardson / Detroit News Washington Bureau

A federal bankruptcy judge told Delphi Corp. Tuesday to slash the amount of cash bonuses it planned to pay its top 560 executives more than $70 million, jeopardizing a plan to pay the company’s outgoing chairman and CEO hefty bonuses.

U.S. Bankruptcy Judge Robert Drain approved Delphi’s plan of reorganization — allowing the Troy-based auto supplier to clear a major hurdle — as long as the company agreed to reduce the amount of cash bonus payments from $87.9 million to $16.5 million that it would make to its top executives.

The company’s bonus plan included an $8.3 million bonus that Delphi had agreed to pay to its outgoing executive chairman, Robert S. "Steve" Miller, and a $5.3 million bonus to CEO Rodney O’Neal, when the company emerges from bankruptcy, which is expected by the end of March.

Delphi spokesman Lindsey Williams said late Tuesday the company was disappointed with the judge’s decision to change the executive compensation plan, but said the company had agreed to the changes.

He said the approval of the reorganization is a major milestone since the company filed for bankruptcy protection in October 2005, the largest industrial bankruptcy filing in U.S. history.

The compensation committee of Delphi’s board of directors will meet "soon" to issue a revised cash bonus program, Williams said. It’s not clear how much bonuses for Miller and O’Neal will be reduced. Miller plans to leave the company when it emerges from bankruptcy.

Judge Drain on Tuesday also approved other aspects of Delphi’s bonus program, including a plan to set aside 8 percent of the company’s shares in a newly recapitalized Delphi to award to top executives over the next decade, including 3 percent to be awarded later this year.

The bonus program drew the ire of Delphi’s unions, which have seen the company eliminate 27,000 of 33,000 hourly jobs and close most of the company’s U.S. automotive plants. Remaining workers also have agreed to take substantial pay cuts.

The United Auto Workers called the executive bonuses "an unabashed attempt by Delphi’s managers" to enrich themselves. The plan "is a massive transfer to senior executives of wealth generated in large part by the sacrifice of Delphi’s rank and file workers," said UAW attorney Peter DeChiara.

Delphi said the bonuses were necessary to keep and retain critical executives. It pointed to an outside compensation study conducted by Watson Wyatt of peer companies that supported its proposal.

Each Delphi executive could get up to 1 million shares of stock and 500,000 shares of restricted stock next year under the plan. Other aspects of the company’s bonus plan remain in place, including awarding $11.5 million in one-time supplemental grants to be paid in stock to compensate for changes in the auto supplier’s new executive retirement program.

Delphi can still award $46 million in its short-term incentive program and $80 million from a long-term incentive program.

Delphi won the support of 81 percent of its creditors for its plan. However, it still must resolve disputes over how much it owes some creditors, including many large corporations and the state of Michigan, which claims Delphi owes $10.5 million in unpaid taxes.

U.S. Sen. Sherrod Brown, D-Ohio, said in the wake of Delphi’s bankruptcy that Congress needed to pass a law limiting executive compensation and bonuses while in bankruptcy.

"Workers want to get back to work, and this hearing gets them one step closer," Brown said Tuesday. "The Delphi exit plan was unfair to workers and retirees who made concessions. Today’s announcement acknowledges the need for shared sacrifice." When it emerges, Delphi will be largely controlled by a group of private equity investors led by Appaloosa Management LP, which have agreed to invest up to $2.55 billion into a reorganized Delphi.

The company still hopes to emerge from bankruptcy in the first quarter of the year. Delphi hopes to announce it has secured $4.5 billion in exit financing as early as today, but it has been soliciting investors for months amid a turbulent credit market.