U.S. government files objection to Borders' executive bonus plan

In a 17-page filing with the U.S. Bankruptcy Court's Southern District of New York, U.S. attorneys said Ann Arbor-based Borders had not provided sufficient proof that the bonuses are necessary, criticized the way they are being structured and questioned whether they would simply benefit "insiders."

The attorneys — Susan D. Golden and Paul K. Schwartzberg, filing on behalf of trustee Tracy Hope Davis — also said the bonuses are not tied to Borders' "financial performance."

"Despite the characterization of the bonus payments as providing necessary incentives to insiders, there is no information that explains what extra services the insiders would perform beyond their ordinary job duties or a detailed description of the nexus between the supposed incentives and the payment trigger," the attorneys wrote.

"The bonus motion provides no financial performance metrics nor are the bonuses tied to the number of stores that will continue to operate under a plan of reorganization. It is also unclear at this stage whether there will be any distribution to unsecured creditors."

U.S. bankruptcy trustees promote "the efficiency and protect the integrity of the federal bankruptcy system," the government says on its website.

The attorneys also spelled out more objections to Borders' plan. They expressed skepticism about Borders' claims that the bonuses are needed and questioned the methodology a consultancy used to generate recommendations on the size of the bonuses.

In documents filed with the court, Borders' compensation consultancy, a firm called Mercer, suggested that the company faces a "risk of disengagement" among its top employees if they don't receive bonuses.

Mercer said it concluded that the company's top 17 executives are being paid base salaries of 38 percent of executives at similar "specialty retailers."

Those 17 executives would get bonuses of up to $7.1 million. Mike Edwards, CEO of Borders Group subsidiary Borders Inc., could get as much as $1.68 million. The company's executive vice presidents could get up to $1.08 million.

Another $1.2 million would be distributed to 25 other "director-level" employees.

The bonuses would be distributed if Borders:

• Can convince the bankruptcy judge to approve a reorganization plan that involves the company's survival. For the top executives, the bonuses are also tied to the company's ability to get the plan approved within five months of its submission.

or

• Successfully attracts a buyer that would continue to operate the company.

Borders filed for Chapter 11 bankruptcy protection on Feb. 16. The company is closing 225 superstores and hopes to exit bankruptcy this fall.

Meanwhile, the company is also considering a move out of Ann Arbor. The firm has determined that it can't afford its current headquarters on Phoenix Drive and is considering other locations in metro Detroit.

Contact AnnArbor.com's Nathan Bomey at (734) 623-2587 or nathanbomey@annarbor.com. You can also follow him on Twitter or subscribe to AnnArbor.com's newsletters.