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Hertz paid out millions of dollars in retention bonuses to its top executives just days before it filed for bankruptcy — and shortly after it laid off thousands of workers.
The beleaguered car-rental company disclosed in a Securities and Exchange Commission filing on Tuesday that it agreed to pay $16.2 million in cash bonuses to about 340 employees in recognition of the uncertainty the company and its employees face as the coronavirus pandemic wrecks the global travel industry. It also cited the “substantial additional efforts” undertaken by the employees with a reduced workforce in the midst of an “extremely challenging” business environment.
Hertz said it gave $700,000 to newly instated CEO Paul Stone. Chief Financial Officer Jamere Jackson received $600,000 and Chief Marketing Officer Jodi Allen got $189,633.
Hertz did not immediately respond to a request for comment.
If the executives leave Herz voluntarily before March 31, 2021, they must repay the money, according to the filing.
Under U.S. bankruptcy laws, retention payments to senior managers are banned after the company immediately files for Chapter 11 status. But firms often circumnavigate the law, passed in 2005, by paying out the retention bonuses right before they file. J.C. Penney, which filed for bankruptcy on May 15, similarly disclosed in a regulatory filing that it gave $7.5 million to four top executives — $4.5 million for CEO Jill Soltau and $1 million apiece for CFO Bill Wafford; Chief Merchant Michelle Wlazlo and Chief Human Resources Officer Brynn Evanson.
Since the virus outbreak gained a foothold in the U.S. in mid-March, prompting a broad swath of the nation’s economy to shut down, Hertz has furloughed and laid off about 20,000 workers, or roughly 50 percent of its workforce, according to the filing.
The company, based in Bonita Springs, Florida, filed for Chapter 11 bankruptcy protection on Friday, saddled with about $19 billion in debt.
It marked one of the most high-profile corporate defaults caused by the crisis, which has brought travel to a screeching halt as states directed residents to stay at home and ordered the closure of nonessential businesses. The company kept $1 billion in cash on hand to keep its businesses running while it moves forward with the bankruptcy process.
Hertz said it sought relief from the federal government, but “access to funding for the rental car industry did not become available.” It also negotiated short-term relief with some creditors, but was unable to secure long-term agreements, according to a news release on Friday.
“With the severity of the COVID-19 impact on our business, and the uncertainty of when travel and the economy will rebound, we need to take further steps to weather a potentially prolonged recovery,” Stone said in a statement. “Today's action will protect the value of our business, allow us to continue our operations and serve our customers, and provide the time to put in place a new, stronger financial foundation to move successfully through this pandemic and to better position us for the future.”
The company’s stock closed at $0.56 a share on Tuesday, down from around $20 in late February.