The Detroit Free Press had an article on bonuses recently given at Kmart to both employees, as well as executives, rewarding them for sticking with the company through its bankruptcy. What is really troubling is the amount that the executives received as a bonus.

Here are the relevant parts of the article:

Chairman Jim Adamson will walk away from Kmart with a $3.6-million bonus when the Troy discounter comes out of bankruptcy by April 30. Adamson has been Kmart’s chairman since shortly before the retailer declared bankruptcy Jan. 22, 2002, and was its chief executive for 10 months.

Julian Day, Kmart’s chief executive since January and its president for just over a year, gets a $1-million bonus. The retailer’s chief restructuring officer, Ron Hutchison, takes home an extra $1 million for his work.

While I agree that executives that have played integral parts in restructuring Kmart and bringing it out of bankruptcy, but the article goes on to quote Bill Brandt Jr., president and chief executive officer of Development Specialists Inc, where he states “[h]owever, most of these emergence bonuses are paid when you emerge as a company likely to survive”. (emphasis added.)

Here is the real crutch of the problem:

Brandt and other experts say Kmart failed to come up with a merchandising strategy that will set the retailer apart from its rivals and attract customers. The company lost $3.2 billion last year and had only one monthly profit.
(emphasis added.)

Its great that the company is coming out of bankruptcy, but there is no light at the end of the tunnel. Kmart was profitable only one month last year. How is it going to be able to pay its debts? If it can’t be profitable, then how can it be ‘a company likely to survive’?

If Kmart had $5.6 million extra to pay bonuses to executives for bringing an unprofitable company out of bankruptcy then why didn’t it spend the money on paying off its debts or paying larger severances to laid off employees?

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