Bankrupt Philadelphia Energy Solutions is seeking a new round of bonuses that would pay seven top executives millions of dollars, depending upon the success of a plan to reorganize or sell the company.
The refinery, in a filing Friday with the U.S. Bankruptcy Court, wants to create a bonus pool for the seven key employees whose payouts would be based upon how much the refinery fetches from a sale and in insurance proceeds. The bonus pool would range from $2.5 million to as much as $20 million if the refinery generates $1 billion in net proceeds from a sale and insurance policies.
The PES executives were already paid $4.59 million in retention bonuses after a catastrophic June 21 fire that led to the plant’s closure and bankruptcy filing, which resulted in all but 175 of the refinery’s 1,100 employees losing their jobs. The company’s chief restructuring officer told the court that it is “essential” to create a new bonus plan tied to the greatest recovery of money for the refinery’s creditors.
“By no means will it be easy” for the executives to hit the target thresholds, said Jeffrey S. Stein, the chief restructuring officer hired by PES to manage the company’s reorganization.
“The ultimate success of the debtors’ Chapter 11 cases and maximization of value for the debtors’ constituents is heavily reliant on the debtors’ senior management team,” the company said in its filing. The executives’ responsibilities “are unique and far more challenging than that of typical management responsibilities.”
The company’s latest round of bonuses — the court recently approved $400,000 in bonuses to retain middle-level managers — drew a sharp response from the refinery’s labor union.
“I’m in disbelief,” said Ryan O’Callaghan, a spokesman for United Steelworkers Local 10-1, which represents refinery workers. “It’s just another kick in the gut from this management team. If they were honorable people, how about if everybody who worked there and put the fire out got a cut of the insurance proceeds?”
The refinery’s most valuable asset is $1.25 billion in insurance covering property damage and for business interruption. The company’s insurance carrier has already paid a $50 million advance on an insurance settlement, which provided a crucial injection of cash to pay for ongoing expenses.
PES is evaluating confidential proposals to buy the 1,300-acre South Philadelphia complex that were submitted by a Friday deadline. The bidding procedures approved by U.S. Bankruptcy Court Judge Kevin Gross call for final bids to be placed Jan. 10, followed by an auction Jan. 17 if there is competition to buy some or all of the property.
The proposed bonuses would be paid if PES confirmed a reorganization within 15 months of its July bankruptcy filing, according to the filing.
The $2.5 million bonus pool could be paid if PES secures at least $300 million in net proceeds from a sale, insurance proceeds, or other payments. The pool would increase to $20 million if the bankruptcy yielded $1 billion in net proceeds.
Chief executive officer Mark Smith would receive 29% of any incentive bonuses, chairman Mark Cox would receive 25%, chief financial officer Rachel Celiberti 18%, and general counsel Anthony Lagreca would get 14%.
Three other employees would receive smaller amounts: John McShane, executive vice president and regulatory affairs counsel, would get 6%; Mark Brandon, vice president of strategy and corporate development, and Daniel Statile, the refinery’s general manager, would get 4% each.
Smith, the chief executive, would get a $725,000 payment under the minimum payment and as much as $5.8 million if the net proceeds hit $1 billion.
Stein, the chief restructuring officer, said the bonus plan was devised on the advice of Willis Towers Watson US LLC, a management compensation consultant. The company said the PES executives were underpaid compared with industry averages, and the bonuses would position them “more competitively with energy industry market practices.”
The company was not immediately available for comment.