Last Friday I wrote about Borders wanting another $50 million in financing, even though it has yet to file a new operating/reorganization plan with the bankruptcy court. Well, on the heels of that news came news that the bankruptcy court has approved a “modified” bonus plan for some of the bankrupt bookseller’s top execs. Yes, the same company that couldn’t see the writing on the wall and act before being forced into bankruptcy is going to reward its executives for doing a good job.
Okay, to be fair, this is a smaller bonus package than the one originally requested by Borders. Several execs are now left out of the plan and the bonuses are tied more closely to how much money the company saves and manages to pay back to its creditors. Still, color me skeptical, especially since there is still no plan for future operations on file with the bankruptcy court — at least not one that I’m aware of.
Borders had argued such a plan was necessary to keep its senior executives on board during the reorganization. According to this article in the Detroit News, some corporate employees had left — 47 according to the article. These departures had created a “leadership crisis” Borders alleged. I can’t help but wonder if there wasn’t a “leadership crisis” at Borders that led up to the bankruptcy filing and that losing some of the flotsam might not actually help. However, that said, I do recognize the need of any company to maintain a viable executive workforce in order for the company to function on a daily basis.
Flash forward to this past Friday. Saying the latest bonus plan is “in the best interest of the debtors, their estates and creditors,” bankruptcy court Judge Martin Glenn approved the plan. For 10 lucky executives, the bonuses will range from 40% – 125% of their base salary. The amount will depend on how much money is saved by the company as it tries to come out of bankruptcy. For the lower bonus to kick in, the company must have at least $10 million in lease renegotiation savings. For the higher bonuses to kick in, they must recover in excess of $95 million for their unsecured creditors.
It is important to note that the bankruptcy trustee still argued that the bonuses were premature. Borders has been in bankruptcy only two months and has yet to file a reorganization plan with the court. So, to me at least, it appears like a case of putting the cart before the horse and that, unfortunately, seems to be the same old operating model that put Borders in the precarious position it now finds itself in.
I’ll be honest, I have grave concerns about how they are going to reach the lease figures necessary to meet the bonus levels. To begin with, Borders said not too long ago that it was looking at closing even more stores — stores that were not on its initial closure listings. To date, it has closed approximately 1/3 of its stores. There comes a point where there aren’t enough stores left to cover the debt. And, as was noted in last week’s post, one of the reasons Borders is looking for another $50 million is because it isn’t making as much in sales at it expected and because — gasp — its suppliers are insisting on payment before turning over stock to them.
How do you increase sales when you are continually decreasing your sales outlets? I know Borders says part of what they want to do is increase their e-book presence. Well, so far, I’m not impressed. I looked up approximately a dozen titles in their e-book store yesterday and not a one was available. These were titles from major publishers and authors. And they weren’t there. It’s hard to be taken seriously as an e-tailer when you don’t have what your customers are looking for.
I’d feel a lot better about the judge’s ruling if we knew Borders had a clue yet about what got them where they are and about how to get out of this mess. Unfortunately, we don’t and that is what the trustee was saying. Is it time to give up on Borders? Not yet. But I do hope the publishers and other vendors supplying Borders with stock continue to protect themselves because I’m not optimistic about its chances for emerging from bankruptcy, much less that it will emerge from bankruptcy and thrive.