Executives’ Bonuses Stir Anger as Polaroid Sinks

In 1996, when Gary DiCamillo joined Polaroid Corp. as chief executive, the company had 10,000 employees and its stock was trading at more than $40 a share. Five years later, Polaroid is in bankruptcy proceedings, thousands have been laid off, and its shares trade for pennies each.

But even as former workers scrounge for medical coverage, DiCamillo, who was paid nearly $850,000 last year, stands to earn up to twice that in bonus pay under a plan Polaroid has asked a U.S. Bankruptcy Court to approve.

The justification? Polaroid said it must pay millions to 45 top executives to make sure they don’t jump the sinking ship before they can use their expertise to disassemble the company and pay off creditors. Some of the payments would be tied to how well the sales go, but others would be guaranteed.

The plan has angered some former Polaroid workers, many of whom never got severance pay and lost thousands of dollars in an employee stock plan.

“[DiCamillo is] looking after his cronies at the top and he forgot about the people that have been there for years,” said Noel Barry of Bellingham, Mass., a former employee who is on long-term disability and recently received word that Polaroid no longer will contribute to his insurance.

These payments to executives, known as retention bonuses, are common in bankruptcy cases, and often creditors say it is money well spent--smart employees are as essential in bad times as in good.

“It’s not a crazy idea,” said Alan Johnson, managing director of the executive compensation firm Johnson & Associates, who has testified for companies seeking approval for retention bonuses. “It’s almost a necessity. The question is to whom and how much.”

Others say the ensuing bad publicity can outweigh the benefits.

“From just a perceptual point of view, it certainly seems not to pass the ethical stink test,” said W. Michael Hoffman, executive director for the Center for Business Ethics at Bentley College in Waltham, Mass.

Generally, such arrangements mix guaranteed payments with incentives based on how long employees stay and how successful they are in selling assets.

At Houston-based Enron Corp., nearly 600 employees received more than $100 million in bonuses last month as the company faced a merger that unraveled and then filed for Chapter 11.

Boston bankruptcy lawyer Paul Daley said such payment proposals are increasingly common.

“When I started 30 years ago, when someone filed a Chapter 11, one of the things you recommended was they take a cut in salary,” Daley said. “Now the fear is always that executives without the bonuses would leave and would spend their time looking for their next job rather than concentrating on the needs of the company.”

Polaroid retirees ridicule such arguments. With a weak economy and Polaroid’s reputation in tatters, they doubt recruiters are actively wooing the company’s top executives.

“Maybe they’re right, these 45 people are essential to the reconstruction of the company, and if so, obviously shareholders ought to applaud such a move,” Hoffman said. “I guess it’s possible, but it does raise not only factual eyebrows but ethical eyebrows.”

Company spokesman Skip Colcord said: “This is an incentive to get key people with key skill sets to remain with the company through the Chapter 11 process.”

In considering retention bonuses, bankruptcy judges must determine whether the plans show proper business judgment. Among the factors considered are whether the employees are to blame for the bankruptcy and how likely they are to leave.

Bill Coleman, vice president of compensation at Salary.com, a Wellesley, Mass.-based executive compensation firm, said the bonus plans are feeding on one another: Each time a plan is approved, it serves as justification for others.

But scrutiny also is on the rise, because so many more Americans are invested in the markets than during the last recession.

“When you have employees losing their pensions or locked out of selling stock when executives weren’t, or kept out of their severance while the CEO is getting one,” Coleman said, “those kinds of patterns create huge negative feelings toward the company.”