Sports Authority bonuses – The Denver Post

Sports Authority’s creditors and the Justice Department have challenged the fading retailer’s plans to pay top executives as much as $2.85 million in bankruptcy bonuses.

Once an operator of 460 athletic-gear outlets, Sports Authority filed for bankruptcy protection and began going-out-of-business sales in an effort to pay its debts. As the liquidation entered its final weeks, Sports Authority unveiled plans for bonuses to four top executives, people the company doesn’t want to name.

On Tuesday, U.S. Trustee Andrew Vara, a Justice Department bankruptcy watchdog, and lawyers for the official committee of unsecured creditors protested the bonuses and the secrecy surrounding the rewards to top executives.“The debtors are seeking to allow payment of compensation, outside of the ordinary course of business, of a substantial amount of money, to a very few, select, insider executives,” Mr. Vara’s lawyer wrote.

A Sports Authority spokeswoman couldn’t immediately be reached for comment on the objections, which came in advance of a court hearing where a judge will consider whether to approve the bonuses.

The bonus money is needed to encourage the executives to do their best in the company’s final days, according to Sports Authority’s lawyers. Confidentiality is appropriate to protect morale, and prevent competitors from using the pay data to lure Sports Authority’s leaders away, the company contends.

The arguments don’t hold water, critics of the bonus program say. Sports Authority is almost completely liquidated, and with many other retailers also in bankruptcy it “strains credulity” to argue the nearly defunct company is surrendering a competitive advantage by releasing executive pay details, the lawyers wrote.

Unsecured creditors called Sports Authority’s argument about the need to protect morale “ridiculous.”

Liquidators, not top management, are running the final effort to get dollars in the doors, creditor lawyers said in papers filed with the U.S. Bankruptcy Court in Wilmington, Del.

Bankruptcy judges routinely allow companies to hide details of bonuses to top insiders on the grounds the information is “commercially sensitive.”

In Sports Authority’s case, however, the federal bankruptcy watchdog and the company’s own creditors are taking a stand against the confidential treatment of top executive bonuses. Generally, companies offer to show the names to the official committee lawyers and the U.S. trustee on the condition that they keep the information secret.

Mr. Vara cited the presumption of public access to judicial records in arguing that Sports Authority be denied confidential treatment.

The creditors committee said hiding the names is the equivalent of hiding the entire bonus program. According to creditors, the millions of dollars of bonuses aren’t incentives for performance. Instead, the creditors say, they appear “to be simply a quid pro quo” for Sports Authority’s agreement to a deal that gives senior lenders $71 million of the company’s scant remaining cash.

Creditors earlier moved to have Sports Authority’s case converted from a chapter 11 proceeding, where the company’s leaders stay in charge, to a chapter 7 proceeding, where a trustee takes the reins. That motion is set for hearing Aug. 2.