After 118 years in business, national department chain JCPenney is looking to file for Chapter 11 bankruptcy, but that hasn’t stopped it from trying to retain its leaders. The company has approved over $5 million in bonuses for its executives, with a caveat that they must stay with the company for the duration of the year.
The End of Department Store
For years speculators have predicted that the old bricks-and-mortar paradigm would not be able to endure the rise of e-commerce. Stay-at-home orders brought on by the coronavirus pandemic have only catalyzed the shift, virtually halting all shopping mall business while allowing online retailers to expand their market.
This month alone, J. Crew and Neiman Marcus have filed for bankruptcy, while Macy’s and Bed Bath & Beyond have also been forced to lay-off huge portions of their workforce. Fears are now mounting that the business lost in the midst of this crisis will never return.
“The U.S. economy is facing structural uncertainty as states look to reopen businesses, but the coronavirus continues to spread,” said Lauren Hirsch, a business journalist at CNBC. She added that for retailers, “there is also uncertainty as to whether — and how — shoppers will want to visit their stores. For those planning bankruptcy, those questions have added complexity as they negotiate loans with their lenders to help finance operations under court protection.”
Throwing In The Towel
JCPenney revealed that it recently failed to make two large debt payments. On April 15th, JCPenney did not pay bond holders the $12 million they were due, and on May 7th, the company defaulted on paying a $17 million debt. And yet, as debts mount, JCPenney’s day-to-day sales have dwindled as a consequence of the pandemic.
Now, in addition to almost-certain bankruptcy, the company is working toward a $450 million debtor-in-possession agreement.
Approving Executive Bonuses
In a move that seems questionable in light of the company’s finances, JCPenney has doled out huge bonuses for its four highest-ranking executives. CEO Jill Soltau will receive a $4.5 million bonus while CFO Bill Wafford, Chief Merchant Michelle Wlazlo, and Chief Human Resources Officer Brynn Evanson will each receive $1 million.
Some view the decision as insensitive, considering the majority of JCPenney’s 90,000 employees remain out of work. But the company claims to be taking a hardline in order to save itself from fatal harm.
A recent company statement on the matter read: “At JCPenney, we are making tough, prudent decisions to protect the future of our company and navigate an uncertain environment, including taking necessary steps to retain our talented management team.”
The incentives for management to stay with the company are pretty steep: if an executive resigns before January 31, 2021, they will have to pay back 80% of the bonus. Furthermore, executives could owe back 20% of their bonus if specific performance goals are not met in that time.
The Nature of Bankruptcy Filings
Bankruptcy filings often prioritize the concerns of creditors over the privileges of workers, and as a result, the process usually leads to massive lay-offs without severance pay.
As part of JCPenney’s commitment to its workforce, it has pledged that any money from the executive bonuses that is returned as a result of an executive breaking their agreement would go directly toward severance for laid-off workers. That jester may go unappreciated since the prospects for a full-force return of employees looks bleak.
Still, bricks-and-mortar JCPenney sites are beginning to reopen, with 16 of 850 nationwide stores open for business as of this week, and another 25 announcing reopening plans as of Wednesday. An additional 13 stores will allow for curbside pickup, though shoppers will be forbidden from entering the building.