ResCap incentive/retention plan approval postponed for salary data

By Sahara Marte

New York, Aug. 8 - Residential Capital, LLC's proposal for an incentive/retention plan that would pay $14.9 million in bonuses to 191 employees did not receive approval at a hearing Wednesday at the United States Bankruptcy Court for the Southern District of New York.

Saying he needed more information before making a decision, judge Martin Glenn questioned whether the increase in compensation for executive officers would be an incentive or for retention.

"Would it be appropriate for executives to see more money during bankruptcy?" asked Glenn.

Glenn ordered the company to produce salary information on the 17 insider positions before making a decision.

The retention plan for 174 purported non-insider employees would most likely be approved, he added.

"We think it's a reasonable, sensible plan that fits," argued ResCap's attorney.

The next hearing is scheduled for Aug. 9.

As previously reported, the plan has drawn an objection from the U.S. Trustee's office, who claims the payments are impermissible under bankruptcy law.

Incentive plan objection

The employee incentive plan "is a disguised retention plan, not an incentive plan, because it sets a low performance bar for employees to earn the proposed bonuses. It does not provide real incentives for the employees to improve their performance, work harder, and achieve results greater than in the past," said Region 2 trustee Tracy Hope Davis in her objection.

To pay bonuses to the 17 insiders under the incentive plan, ResCap would need to prove three elements, the trustee says:

• Each of the 17 had a job offer at the same or greater compensation;

• Each of the employees' services are essential to the business' survival; and

• The payments fall within the strict limits of the bankruptcy code.

Retention plan objection

The key employee retention plan is subject to the business judgment of the debtor, "if none of the 174 employees eligible ... are insiders," the objection states.

However, the plan includes employees with officer and director titles, such as vice presidents, senior vice presidents and directors of operations, among others, according to court documents.

The debtors contend the titles are merely "officer-like."

Even if the debtors' assertion is true, ResCap fails to meet the legal standard, the trustee claims.

"To be approved, the bonuses must be an actual and necessary cost of preserving the estate, applicable to any administrative expense claim," the objection states.

Details of plans

The company proposed $14.9 million in target payments under the two plans - $4.1 million under the KEIP and $10.8 million under the KERP.

If new participants need to be added to either of the plans because of changes in the employee population, the target payments would not exceed $15.9 million, with $4.6 million going to the KEIP and $11.3 million to the KERP.

In addition, the company said there is a potential payout of $7 million under the KEIP if final sale proceeds exceed anticipated sale proceeds by 3% or more.

"We are going to see meaningful bidding on both assets," added the ResCap attorney.

Residential Capital, a New York-based mortgage originator and servicer, filed for bankruptcy on May 14. The case number is 12-12020.

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