The Ford objection—filed Friday, July 10, in U.S. Bankruptcy Court in Wilmington, Delaware—responded to a Visteon proposal filed June 30 that could award up to $80.3 million in bonuses to ensure its employees’ good performance through the bankruptcy.
That money encompasses two pre-bankruptcy bonus plans and a new program that would provide as much as $30.1 million in bonuses for 100 key employees, money that Ford says would amount to between 90 and 375 percent of the employees’ base salaries. Visteon’s filing said that amount could be lower—between 60 and 250 percent of employees’ salaries.
In its objection, Ford said it could not see how Visteon could justify giving the bonuses while layoffs, pay cuts and bonus eliminations were widespread throughout the market.
“Job retention should be enough,” Ford said. “In this bleak job market, does it make business sense for a company to pay bonuses to its key employees for simply remaining employed and doing the jobs that they were already being paid to do?”
The Wall Street Journal reported Ford’s objection on Monday, July 14.
Since it entered bankruptcy protection May 28, Visteon has operated “exclusively by using and consuming Ford’s cash collateral,” Ford said.
In May, the automaker assumed a $163 million secured revolving credit facility from Visteon’s lenders, and Ford has agreed to provide at least $125 million in bankruptcy financing.
“As the sole current and potential majority future source of funding to the debtors, Ford has a substantial economic stake in the Visteon incentive program,” the automaker said.
Many suppliers and automakers including Ford have eliminated a performance bonus for 2009, the automaker said. The Visteon incentive program would require Ford to “fund or otherwise pay for” a bankrupt supplier’s bonuses, the automaker said.
Visteon spokesman Jim Fisher said that because the bonus plans are based on “very aggressive” goals, the supplier does not expect to pay out the maximum amount.
“It’s very, very unlikely that those goals would be met,” he said.
In addition, the new bonus component creates incentives for achievements that will help Visteon emerge from bankruptcy, Fisher said.
“Achieving those goals will require a great deal of work.” he said. “That program would align the goals of the key employees with the primary stakeholders.”
Despite taking issue with Visteon’s current bonus plan, Ford said it would not object to some form of a key-employee incentive.
The automaker suggested a plan that would disclose the names of the 100 key employees, limit bonus payments to 100 percent of base salary and not pay the bonuses until Visteon emerged from bankruptcy.
Visteon has never posted an annual profit since being spun off by Ford in 2000. The automaker accounts for 12 percent of Visteon’s U.S. sales.
The United Auto Workers, General Motors and the committee of unsecured creditors also have objected to the Visteon bonus plan.
Visteon ranks No. 18 on the Automotive News list of the top 100 global suppliers, with worldwide sales to automakers of $9.1 billion in 2008.