Failed CEOs succeed in looting their companies even as they teeter on the brink of bankruptcy.

By Yves Smith and cross-posted from Naked Capitalism.

Nothing like paying for failure. The Financial Times describes how CEOs who ran their companies into the ground are nevertheless rewarded with “retention bonus” payouts shortly before the business declare bankruptcy, often mere days ahead.

The absurd rationale is that it is necessary to keep a failed CEO on in order to reduce disruption. It appears instead that boards would rather pay a rich and unwarranted premium to keep a bad known quantity around, perhaps due to personal allegiances to the incumbent or because they might actually have to rouse themselves to oust the dud leader and select a replacement.

Are we to believe that the stipends these boards approve has any relationship with the market value of these CEOs, even charitably assuming someone would hire them after their companies collapses underneath them? Are we to believe there was no able lieutenant worth a battlefield promotion? No retired industry greybeard who could be engaged for an eighteen month to three year gig? No one in the ranks of turnaround expert or “temp for hire” CEOs who would do?

Even worse, some of these payments are flat out looting:

Brad Holly, Whiting’s chief executive who joined the company in November 2017, received $6.4m at the end of March under a new compensation plan approved by the board of directors, which he also chairs, less than a week before the company filed for bankruptcy. Whiting, which expects to emerge from Chapter 11 next month, said last week that Mr Holly would step down as chief executive when that happens and would receive an additional $2.53m in severance.

In total, Whiting paid out more than $14m to executives just a few days before declaring itself bust. In a regulatory filing on April 1 the company said its pay plan was designed “to align the interests of the Company and its employees”. Whiting did not respond to a request for comment.

$6.4 million for Holly for at most five months of babysitting bankruptcy lawyers? Seriously? Another example:

Briggs & Stratton’s board approved more than $5m in retention payments on June 11, including more than $1m to chief executive Todd Teske, who has led the company for a decade. Four days later the company failed to make a $6.7m interest payment on a bond due later this year, and on July 20 it filed for bankruptcy. On July 19, the company’s board voted to terminate the health and life insurance benefits of the company’s retirees…

The company’s 2020 bond is now trading at just a few cents on the dollar, reflecting slim hopes of recovery.

Why are these losers who almost assuredly have nowhere to go being paid in advance? Why aren’t they instead getting $1 per year and working for a contingent payout to be paid when the company emerged from bankruptcy, say tiered based upon results versus specified targets? This is the sort of deal that someone who cared about salvaging the company, as opposed to his personal bottom line, should accept…