Employee Benefits & Executive Compensation in Corporate Bankruptcy
Employee benefits and executive forms of compensation may seem similar, but there are often stark differences, especially when a company faces a bankruptcy. A company bankruptcy rarely leads to a business shutting down permanently. Instead, another business will often agree to buy the company and merge it in with already-present business operations. The company's value on the stock market and its assets are also combined, leading to complex maneuvering with company finances that have vastly different effects on employees compared to executives.
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Employees
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Employees usually receive benefits such as health insurance, bonuses and retirement payments when working for a company. In general, a bankruptcy will put all these at risk. Even if the business is absorbed by another company, it is unlikely employees will receive any money from old bonus plans. Old health insurance plans will run out and possibly be replaced by new plans if the employee is retained. Retirement payments may rollover or be discontinued depending on the fate of the business.
Executive Compensation
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Executive compensation often refers to the compensation that executives receive from the bankruptcy. While it may appear paradoxical that executives receive any type of compensation from a bankruptcy, executives may have clauses in their contracts that require a certain bonus package if the business fails. Other executives, especially those with a stake in the company, are able to negotiate future payments from the sale of the company or reserve funds for themselves if company assets are being sold off.
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Stock Options
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Stock options are a common benefit for both executives and employees. These options give employees the ability to buy company stock at a certain price -- rarely a benefit at all if the company files for bankruptcy. As a result, employees and executives are both left with relatively worthless stock that often ends up being canceled altogether. Executives may have the ability to get rid of their stock along with the company, but this option is often offered to all those with stock options.
Unions
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When a business uses union workers, bankruptcies can become even more complex. Unions will often demand a certain amount of compensation from the company in case of a bankruptcy, ensuring that certain benefit requirements will be met. The company, already struggling financially, will often make a counteroffer. If the union persists, the company may actually be forced into filing bankruptcy just to meet the union demands.
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