Toys R Us won court approval on Tuesday to pay its top executives up to $21 million in holiday bonuses, including CEO David Brandon, even though the company was driven into bankruptcy earlier this year.
Lawyers for the toy giant argued that even though the retailer filed for bankruptcy in September, the bonus money is needed to help incentivize executives to boost sales during its critical year-end shopping season.
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"The company is laser-focused on the holidays," Joshua Sussberg, a Toys R Us lawyer said at a hearing at the U.S. Bankruptcy Court in Richmond, Virginia Tuesday, according to Reuters.
Sussberg continued to argue that only half of the U.S. population has completed their holiday purchases, which still gives executives time to motivate shoppers “to buy as much they can,” with hopes that sales could help turn things around for the struggling retailer. Toy R Us said it makes nearly 40% of its net sales during the fourth quarter.
Under the bonus plan, 17 eligible executives would split about $21 million, if earnings before interest, depreciation and amortization for this fiscal year reach $641 million. And, if earnings reach $550 million, executives would split about $14 million.
Sussberg added that both targets were “incredibly hard to achieve,” and the company plans to have a new business plan by the summer of 2018, hoping to exit bankruptcy before next year’s holiday season.
The Virginia bankruptcy judge ruled in favor of the payout plan despite an objection by the U.S. Trustee, a government bankruptcy watchdog.
Last month, Judy Robbins, a Department of Justice (DOJ) trustee, blasted the proposal in a fiercely worded letter, saying that five of the potential recipients already split $8.2 million in retention bonuses a week before its September bankruptcy filing, which included a $2.8 million incentive for Brandon, “just to stay with the company.”
"It defies logic and wisdom. Multi-million dollar bonuses for the senior leadership of a company that began the year with employee layoffs and concludes it in the midst of the holiday season in bankruptcy,” Robbins wrote in November. "Apparently, this Christmas, Toys R Us intends to deliver not only 'children their biggest smiles of the year' but the insiders, too.”
Despite the pushback, Virginia Judge Keith Phillips ruled that the payments were reasonable.
Toy R Us, like other retailers, has faced a growing challenge from various online platforms like Amazon (NASDAQ:AMZN), which contributed to its $5 billion worth of debt.
On Monday, the retailer also announced it plans to close at least 26 of its 105 stores in Britain in 2018, as part of its bankruptcy plan.
Toy R Us did not immediately respond to FOX Business’ request for comment regarding the executive bonuses.