March 27, 2006
KERPS in Bankrutpcy
Last year Congress revised federal bankruptcy law. One of the targets was excessive key employee retention plans (KERPS). CEOs who had driven companies into bankruptcy demanded and received huge pay packages inside bankruptcy so the would not leave. The new act allows KERPS only if an executive has a competitive job offer elsewhere. But there is an exception for "performance" incentives. Performance incentives are regulated by judges. But judges have an incentive to give the high pay packages to CEOs and to their attorneys so they will win in the forum shopping contest for courts. So crazy large performance packages are routinely advocated in bankruptcy proceedings under the new legislation. [$1million for selling assets successfully in the Nobex Corp. bankruptcy, for example.] Congress did not stop forum shopping in the legislation. It is further evidence that the excessive executive pay problem is very difficult to regulate.
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