Dana can pay bonuses with caps to execs

12/1/2006

Toledo's Dana Corp. can pay long-term incentive bonuses to leader Mike Burns and five other executives for the next two years, but a cap must be specified since the men already are eligible for millions of dollars in annual incentives, a judge decreed yesterday.

It remains unclear, however, whether retirees, unions, and other objectors to the plan endorsed by other unsecured and equity security holders will be among those with whom Dana has to negotiate.

The judge asked the parties, whom he didn't specify, to "attempt to reach a consensus" on an appropriate cap. A deadline was not specified.

The fact that Mr. Burns will get any bonus while the company wants to take health-care benefits away from retirees, some of whom are living at poverty levels, is inappropriate, said attorney Jon Cohen, who represents the nonunion retiree committee.

"It obviously is not going to be the driving issue in the case, but it's certainly disappointing," he said.

The bigger issue for retirees is whether their health-care benefits can be reduced or eliminated and, if they are, they can mitigate losses through unsecured claims, Mr. Cohen said.

The decision was key because a U.S. trustee assigned to the case as well as unions and retirees attorneys strongly objected to the plan, the third one submitted by the Toledo Fortune 500 firm.

The company proposed Mr. Burns would get up to $6.75 million in cash and stock in the company after it emerges from bankruptcy and five other executives would share up to $4.77 million.

Spokesman Chuck Hartlage said the company is pleased Judge Burton Lifland of U.S. Bankruptcy Court of Manhattan approved of paying bonuses. It looks forward to working with other parties to negotiate a cap, he added.

The trustee, who is part of the Justice Department, centered on whether the proposed payments are retention bonuses or incentives, the answer to which could violate a year-old bankruptcy law. Bankruptcy attorneys say they are closely watching how the bonuses are treated since the Dana case is the first major test of the law enacted last year.

Judge Lifland filed an opinion yesterday that said the firm's plan to pay the executives bonuses if the company exceeds certain performance criteria are permitted under the law.

He had rejected a previous proposal in September, saying it was not an incentive plan as allowed by the law's provisions that prevent executives from taking sizable bonuses while workers suffer cuts in pay or benefits.

Dana's latest plan is "substantially watered down," Judge Lifland wrote yesterday.

"The plan before the court today, unlike the previous iteration, has no guaranteed payments to the CEO or senior executives other than base salary and is a substantial retreat from the original proposals."

Still, since Mr. Burns and the executives could get up to 200 percent their salaries next year alone under an already established incentive plan, unrelated to the latest court request. But it is unclear how much compensation they could receive, Judge Lifland said.

The total compensation may be unreasonable, disproportionate, and overly generous, he wrote.

Mr. Burns' salary for this year is nearly $1.6 million. Salaries for the other executives range from $500,000 to $600,000, according to the judge's filing. Mr. Burns could get up to $2 million under the established annual incentive plan, while the others could each get $336,000 to $528,000, he wrote.

The retiree committee had pointed out that the bonus plan pending before the court was inappropriately proposed three days before the parts maker announced it wanted to trim its work force, cut wages, and eliminate retiree benefits, among other cost-cutting moves.

Mr. Cohen, the committee's attorney, said he has received gut-wrenching calls from many Dana retirees, including one woman yesterday whose health insurance premiums were increased 96 percent. Her husband is deaf and has Alzheimer's disease, and she asked Mr. Cohen if he could help.

"It just puts the whole [executive] compensation issue into context," he said.

Dana filed for Chapter 11 protection in March because of cash flow problems.

During a hearing last week about the incentive bonuses, a Dana official revealed the company expects sales of pickup and sport-utility vehicle parts will decline $750 million next year, while sales for commercial trucks parts will decline $500 million, according to the judge.

Contact Julie M. McKinnon at:

jmckinnon@theblade.com

or 419-724-6087.