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MNB reported last week that Winn-Dixie, currently in bankruptcy protection, has asked the courts for permission to pay out almost $14 million in retention bonuses to 290 executives who are currently with the company, and up to $120 million in severance pay to employees laid off by the company.

The retention bonuses would amount to between 25 and 150 percent of the executives’ salaries, depending on the person and the position. In its filing, the company said that keeping these executives on staff was critical to emerging from bankruptcy as a stronger company. The company’s new CEO, Peter Lynch, would not receive a retention bonus, though he already has received a $1 million bonus for work done to date.

We commented:

The unpopular question that needs to be asked is how many of the executives being paid retention bonuses actually helped drive Winn-Dixie into the ground with their actions? Because under those circumstances, maybe a retention bonus isn’t such a good idea.

The argument could be made that when a company is in such trouble, the real bonus is that you get to keep your job, pay your mortgage, clothe and feed your family. Unlike the poor folks who weren’t in decision-making roles and managed to lose their jobs because of poor leadership and management.

Actually, we have no problem with retention bonuses – but they ought to be paid after the company emerges from bankruptcy and when it starts keeping the books in black ink, not red. This way, there’s a real incentive to make the right decisions and implement them vigorously. It’s called having skin in the game.

One Winn-Dixie associate who asked to remain anonymous responded:

These retention bonuses are probably coming too late. The best people, the ones who could have actually made a difference, began departing months ago. Some of them wanted to help turn things around, but the guys on top didn't give them a chance to implement anything new. Most of the senior people at Winn Dixie have big egos, so they turn a deaf ear to new or better ideas. These same guys still don't see how they had any part in the "perfect storm" that Peter Lynch keeps talking about.

Sorry, there wasn't a perfect storm, there were just a lot of people with their heads in the sand. All of this great insight means that they get retention bonuses and six figure salaries. I've got a bit of common sense, how do I get one of those jobs?

The people who deserve the retention bonuses are usually the ones in the trenches who are working to keep the stores operating. Winn Dixie NEEDS to retain the store manager who actually cares about the customer, the clerk who makes sure that everyone gets paid and the IS guy who makes sure the computer rings up the right prices. There are members of senior management who add no value to this company. Lose them, and you save a bunch of money on salaries. Of course these are the same people who will get the huge severance packages, and in six months will be hired by Kroger or Safeway or Bi-Lo for an unheard of salary with big sign on bonus.

There's lots of talk around here about how things are going to change, but this whole retention thing has made most of us lowly workers realize that the only ones Winn Dixie will take care of are the big guys in Jacksonville. It's more than a bit disheartening.

MNB user David J. Livingston wrote:

Wait a minute -- 290 executives? Gee, how does Winn Dixie define executive? That is a lot of executives. No wonder Winn Dixie is bankrupt -- they are over-staffed. Winn Dixie has over 55% of their stores performing under $5 per sq ft per week. Obviously this statistic will not be improving so we can probably expect to see up to 500 stores to be disposed of. With what will be left over, you won't need huge staff. Just look what happened at Kmart. Do you really need to pay them a bonus? Does anyone really think there is this big demand out there for Winn Dixie executives? This would be like giving a 42-year-old NFL quarterback of a losing team a bonus not to retire. If Winn Dixie had any hope of not liquidating, they would not be doing this. What this comes down to is 290 people dipping their pens in the company inkwell one last time.

Another MNB user wrote:

Somebody ought to slip your note to the bankruptcy court.

Pay the bonus when it's proven they actually earned one. It would also be important to see what the criteria is for paying a bonus? how are you folks going to document who should or shouldn't get one? What are your measurement points. Just getting out of bankruptcy doesn't pay off. Making money for the shareholders might.

It's a ridiculous situation when you feel the need to pay someone a bonus for hanging around to bail the company out. In my mind a paycheck will suffice for this purpose. If a few leave, so what.....We’re not talking about the best in the business here managing things for quite awhile now.

MNB user Kurt Burmeister wrote:

I couldn't agree more. Too many "top" executives have contributed to driving companies south yet they still manage to receive premiums when in fact some of the "special premiums" is what has lead to poor decision making…

If there are any retention bonus paid they should be to the store level associates that have had to endure the lack of profitable direction from the top. In actuality the lowest paid people are in touch with customers the most. Without them there will be no emergence.

Another MNB user chimed in:

I agree with the notion the "executives" @ Winn Dixie are lucky to have their jobs . If anything, the poor ones should have been canned and the remainder given incentive promissory notes once out of bankruptcy. Ridiculous for them to receive a bonus!

MNB user Richard Sokolnicki wrote:

I'm with you 100% on the Winn-Dixie bonus scheme. I always thought that people should receive deferential bonuses based on the best performance, not the worst. Plowing a company into bankruptcy should not merit a bonus.

And if they want to spread bonus money around after a turnaround, maybe they should start at the bottom of the pay scale. These would be the people who represent the real face of the company and are the ones who will have made it happen.

Another member of the MNB community wrote:

Seems to me that they should look at dropping their sponsorship for the Jacksonville Jaguars, and the Tampa Bay Bucs, as well as a NASCAR race.

If I were a share holder, I would be questioning the value of these sports sponsorships, running into the millions.

However, we did get one email disagreeing with our commentary, as one MNB user wrote:

Perhaps you have never worked for a company that has gone through bankruptcy; I have. Believe me when I say that going through a bankruptcy it is not fun. Further, my experience is that retention bonuses are only paid when the company emerges from bankruptcy, or if the company attains defined budget sales and margin numbers. The company has to ask the bankruptcy for the right to offer those bonuses. So I don’t think WD is going to just give these bonuses to certain individuals up front to stay, I believe it is more like the company has the opportunity to pay individuals bonuses if the company attains budget numbers and that individual is employed at the time those bonuses are paid. Now perhaps some are of the mindset that one should be happy to just have a job and pay the mortgage, but I don’t think that people with that mindset are of the type that has success managing companies.

To your point of paying bonuses to those responsible for driving a company into bankruptcy being an injustice, I agree, but if you look at most publicly held companies, the management in place is not the same as the team that paved the way to bankruptcy. New CEO’s are brought in and they typically clean house. Look at WD and count the number of merchandising VP’s that have been there longer than two years. And believe me when I tell you that when you join a company that is already in a death spiral, it is almost impossible to bring it out. This path for WD was set longer than two years ago.

The bottom line in my opinion is that a company in the situation WD is in must have the ability to retain and recruit talented people that can develop, initiate, and follow through with the programs, processes, and policies that will bring it through a bankruptcy event.

Well, since you asked…

While we never worked for a company that was technically in bankruptcy, we have worked for several companies that were closed down by parent companies. At the last one, an Internet business, the writing was on the wall for some time that sales were not where they needed to be and that the majority investors were displeased. (Though how displeased was never communicated to us – we were constantly told that the one thing that could never happen was that we could simply be closed down on a Friday…which, as it ended up, is exactly what happened.)

However, in the months leading up to that closing, our response to the crisis was to volunteer to move from a full-time staff position to a part-time position in which we would be paid less money and get no benefits – because we thought that was the right thing to do to keep the enterprise alive. Now, we weren’t be suicidal here – we figured we could make up the income elsewhere, and we received health benefits through our wife’s employment.

Now, if we were following what seems to be the more traditional logic, we would have informed the powers that be that if they wanted us to stay, they’d have to pay us a retention bonus or at least promise us one if things got better. Maybe we’re not very smart about this stuff, maybe we don’t have the kind of mindset that makes people successful at managing companies…but trying to take advantage of the situation never occurred to us.

Life goes on. The business went belly up, and we moved on to create and own MNB, where hopefully this stuff won’t happen.

But here’s the bottom line. Not only did we not try to milk a bad situation, but we would have worked for nothing for a while if it would have helped to keep that business alive…because we felt a responsibility to the business, its customers and its employees.

We’re not going to be nominated for sainthood anytime soon. But we think that corporate leadership means not just looking after yourself.
KC's View: