Monday, December 11, 2006

Pensions, bonuses eat at Delphi

Saturday, December 09, 2006
Pensions, bonuses eat at Delphi
Auto supplier faces lag of $1.25B in required pension payments amid push for executive bonuses.
David Shepardson / Detroit News Washington Bureau

WASHINGTON -- A federal bankruptcy judge is expected to decide next month whether to approve two executive bonus programs at Delphi Corp. -- including a controversial $388 million retention program for key executives.

At the same time, federal pension regulators said Friday that Delphi is now at least $1.25 billion behind in required pension funding payments since it filed for bankruptcy in October 2005.

The Pension Benefit Guaranty Corp., the federal agency responsible for insuring private pensions, estimates that Delphi's pension fund, which covers about 75,000 people, is underfunded by as much as $10.6 billion.

Since filing for bankruptcy protection, Delphi has made $234 million in pension plan payments. But the auto supplier was supposed to have made nearly $1.5 billion in pension payments since filing Chapter 11, Jeffrey Spiker, a spokesman for the PBGC, said Friday.

U.S. Bankruptcy Judge Robert Drain set a Jan. 11 hearing to decide if Delphi can implement its $388 million "key employee compensation program" for 466 U.S. executives. That proposal is opposed by Delphi's unions, creditors, shareholders, the U.S. Trustee and federal pension regulators.

The Troy-based auto supplier also wants to award annual incentive bonuses if the company meets financial targets in the final six months of 2006 in nine business areas.

In February, Drain approved the short-term executive bonus plan through June 30. The company met specified targets and awarded roughly $20 million in bonuses, company spokesman John Shea said Friday.

In July, Drain allowed Delphi to set targets for the last half of 2006 but hasn't signed off on the bonus plan worth about $20 million.

Delphi hopes to emerge from bankruptcy in the first half of 2006 and is seeking to close 21 of 29 U.S. plants, while shedding 20,000 hourly employees and thousands of white-collar jobs. It is also seeking to dramatically reduce wages and benefits by hiring cheaper temporary workers to replace workers who have taken buyouts and early retirements.

Under the Key Executive Compensation Program, 466 executives would split $88 million in cash plus $300 million in stock in the recapitalized Delphi. The company's CEO Robert S. "Steve" Miller would be compensated separately from the program at the board's discretion.

The UAW said in a court filing the stock grant could top $400 million, because the managers would get 10 percent of the company. Miller and four top officers could get $37.5 million in stock options and restricted stock.

Top officials are also covered by a severance program that gives the top 21 officers a total of 18 months' worth of salary and target bonuses if they are forced to leave the company. Another 89 execs would get a year's pay and bonus as severance, while 373 other managers would receive a year's pay. The severance program could be worth as much as $145 million, the UAW said.

Delphi has defended the key employee compensation plan, noting that many companies in bankruptcy have used the programs to maintain critical executives including auto suppliers Collins & Aikman Corp., Tower Automotive Inc. and Federal-Mogul Corp., which all won court approval of bonuses.

Delphi has spent 14 months trying to win court approval for its program and spent at least $1.5 million in legal bills on the bonus program.

"We're trying to find a competitive wage rate for all employees," Shea said.

Delphi plans to freeze its pension plan in the first half of 2007 for hourly and salaried employees, the company's lawyers said in a Nov. 30 court filing. That means employees couldn't accrue any new pension credits.

Because Delphi failed to make minimum required payments, it faces possible excise taxes and filed a request with the Internal Revenue Service to waive those penalties, court records show.

Delphi has been in talks with former parent General Motors, its creditors and hedge funds to finalize a plan to emerge from bankruptcy. GM said it expects to pay Delphi between $6 billion and $7.5 billion, with some of the money earmarked for Delphi pension obligations.

Hedge funds have been in talks to pump money into Delphi's pension fund in exchange for an equity stake in a recapitalized Delphi.

Delphi's lawyers said in the Nov. 30 court filing that a "workable solution" is being discussed and Delphi "anticipates the current pension situation will be resolved through these discussions and a plan or reorganization."

The PGBC is an unsecured creditor in the bankruptcy because it would be liable for the bulk of Delphi's unpaid pension liabilities if Delphi sought to terminate its plan.

The PBGC opposes the key employee compensation program. "(Delphi) seeks approval to allocate millions of dollars in cash and equity their executive-level employees while contemporaneously asking their rank and file workers to take substantial reductions in their pay rates and benefits."

You can reach David Shepardson at (202) 662-8735 or

Delphi bonus programs

Delphi wants to award $388 million in cash and stock to 466 key executives when the company emerges from bankruptcy.

It also wants to continue a $20 million short-term executive incentive program covering the last six months of 2006 if the company meets financial targets. Only $5.7 million of that fund can go to the highest-level executives on the company's strategy board.

Delphi also wants to be able to pay its CEO an unspecified bonus when it emerges.

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