This presentation will cover key employee incentive plans (KEIPs), key employee retention plans (KERPs), and other executive and employee compensation issues specific to Chapter 11 bankruptcy, including before filing, during the pendency of the case and upon/after emergence. Pre-filing executive retention awards have been the norm as of late, but such payments may be subject to clawback under Bankruptcy Code Section 548, so proper implementation of such awards (including socialization with the right creditor constituencies) is crucial. KEIPs and KERPs remain key components of post-filing compensation.
When seeking approval for KEIPs and KERPs, counsel must understand the applicable standards and burdens of proof under Bankruptcy Code Sections 503(c)(1) and (c)(3), as well as whether testimony and other evidence are sufficient to meet its burden. If proceeding under Section 503(c)(3), the proponent must show how the KEIP incentivizes participation and is not a hidden retention program; otherwise, the KEIP may be rejected by the bankruptcy court. In terms of post-emergence compensation, equity-based programs (commonly referred to as MIPs) continue to be the primary incentive for key executives and employees but are becoming more of a challenge to negotiate on the front-end, with much discretion left to the new board.
This course is co-sponsored with myLawCLE.
Key topics to be discussed:
- Applicable bankruptcy law for compensation plans
- Compensation issues in chapter 11
- The Government Accountability Office bankruptcy report
- Current compensation design trends and compensation alternatives companies should consider
Date: February 21, 2023