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Judges reject bonus plans for executives at bankrupt companies

By Tom Hals

WILMINGTON, Del, Oct 2 (Reuters) - A U.S. judge on Friday rejected a plan to pay millions of dollars in bonuses to top executives of bankrupt miner Molycorp Inc, two days after GT Advanced Technologies Inc failed to get approval of a similar plan.

Molycorp, which filed for bankruptcy in June, had said the bonus plan would align executives' goals with those of its creditors to maintain the value of the rare earth miner's business.

U.S. Bankruptcy Judge Christopher Sontchi in Wilmington, Delaware, ruled at a Friday hearing that some of the incentive targets amounted to payments for staying in their job. He criticized one target as "file a report and hang around."

Molycorp's creditors and the United Steelworkers union opposed the plan, which could have paid up to $2.9 million in bonuses, saying it was being funded in part by idling a California mine and laying off the workforce there.

On Wednesday, Judge Henry Boroff in Springfield, Massachusetts, for the second time rejected former Apple Inc supplier GT's plan to pay up to $2.2 million in bonuses.

"In essence, the insiders seek bonus compensation for doing a job they are already obligated to do," Boroff wrote in his 24-page opinion.

Large bankrupt companies often seek approval for bonuses, but top executives and board members who are deemed "insiders" can only participate if the plan includes difficult targets, rather than mere retention payments.

Electronics retailer RadioShack, for example, earmarked $2.3 million for insider incentive bonuses in its recently approved bankruptcy reorganization. The company did not disclose the names of eligible executives when it sought approval for the bonus plan, which paid out in part because a certain number of stores survived the bankruptcy.

"I'm a believer in incentive plans for executives," Sontchi said at Friday's hearing. Last year, the judge approved a plan proposed by bankrupt Texas power company Energy Future Holdings Corp.

Companies in bankruptcy have said the incentive plans are critical in encouraging and rewarding top talent during a crisis. They sometimes say they need to pay cash bonuses because their stock-based incentive plans are rendered worthless by the bankruptcy, an argument that Boroff in the GT ruling called "insensitive" to shareholders.

Still, the plans are often approved, particularly if they are modified to win creditors' backing, something Molycorp lacked.

The U.S. Bankruptcy Court cases are Molycorp Inc, District of Delaware, No. 15-11357, and GT Advanced Technologies Inc, District of New Hampshire, No. 14-11916.

(Reporting by Tom Hals in Wilmington, Delaware; Editing by Lisa Von Ahn)