DELPHI CORP.
Judge: No extravagant bonuses for company execs
The UAW isn’t just a defender of workers’ rights in the workplace. It is also a check and balance against corporate greed anywhere.
That was clearly shown Jan. 22 when U.S. Bankruptcy Judge Robert Drain agreed with UAW arguments against Delphi’s excessive executive compensation package as part of the company’s reorganization plan to emerge from bankruptcy. The Troy, Mich.-based auto parts supplier filed for bankruptcy protection in October 2005.
With only the UAW and the International Union of Electrical Workers (IUE) out of 4,000 Delphi creditors opposing cash bonus payments of $87.9 million, Drain declared he would approve Delphi’s reorganization plan only if it slashed executive bonuses by $70 million. Delphi hopes to emerge from bankruptcy by the end of March.
“The executive bonuses were a slap in the face to all Delphi workers who sacrificed to help this company get back on its feet,” said UAW President Ron Gettelfinger. “We appreciate that Judge Drain kept an open mind during three days of hearings where we argued against this corporate greed. He responded in the only fair way possible.”
A bankruptcy judge forcing a company to reduce its executive compensation plan is not unprecedented, but it’s unusual, according to John Pottow, associate law professor at the University of Michigan Law School. He predicts Drain’s decision could encourage unions to challenge excessive executive compensation in other bankruptcy cases.
Delphi argued bonuses are necessary to attract and retain key executives vital to the company’s revival.
In 2006, Sen. Evan Bayh, D-Ind., and Rep. John Conyers, D-Mich., introduced the proposed Fairness and Accountability in Bankruptcy Reorganizations Act that would close loopholes allowing management to propose lucrative executive compensation deals for themselves while they are slashing wages and benefits for workers and retirees.
As a result of Delphi’s attempt to give its executives extravagant bonuses, Sen. Sherrod Brown, D-Ohio, said he intends to propose legislation limiting such bonuses for companies in bankruptcy. “The announcement acknowledges the need for shared sacrifice,” Brown said.
Sacrifice had been anything but shared at Delphi as 27,000 U.S. jobs were eliminated out of an original 33,000, and 20 of 28 U.S. plants were sold or shut down.
Delphi says its future growth will take place in Europe, Asia and South America.
The company’s agreement to cut executive bonuses opens the door for it to secure exit financing loans. When it finally emerges from bankruptcy, the company will be controlled largely by a group of private equity investors led by Appaloosa Management LP.
Delphi is a major supplier to General Motors, Ford, Volkswagen and Hyundai of electronics, satellite radios, electrical centers and sensors. The company has 171,000 employees at 159 sites in 36 countries.
