The judge overseeing Cumulus Media‘s Chapter 11 reorganization petition will hold a hearing on Monday (3/12) at 10am to determine whether or not the company can move forward with two specific incentive compensation programs one group of lenders has formally objected to.
Cumulus wants Shelley Chapman, Judge for the U.S. Bankruptcy Court for the Southern District of New York, to overrule the objections.
As RBR+TVBR reported on Feb. 9, two bonus programs — the “QIP” and “SIP” incentive programs Cumulus administers — were adjourned until March 12.
Cumulus’ Quarterly Incentive Plan is the QIP. This was first revealed on May 18, 2017 in an SEC filing. This move saw Cumulus’ Board of Director shift from an annual to a quarterly compensation plan for 2017. Additionally, the board adopted a supplemental incentive plan for 2017, the so-called SIP. This was done after being instructed to do so by the board’s Compensation Committee and the committee’s independent compensation consultant.
Awards to named executive officers under the 2017 Quarterly Incentive Plan (QIP) are based on Cumulus achieving budgeted adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) levels. The target cash incentive award opportunity available to each named executive officer under the 2017 QIP is calculated as a percentage of each named executive officer’s base salary, all in accordance with the terms of each officer’s existing employment agreement. This means that performance is measured at the end of each quarter.
If target performance levels for the year-to-date period have been met or exceeded at the end of each quarter, 25% of the total annual target bonus will be awarded following the applicable quarter end date.
Simply put—If target performance levels for the year-to-date period aren’t met, there’s no bonus.
If Cumulus met or exceeded the full-year 2017 maximum EBITDA goal, each named executive officer is entitled under the 2017 QIP to a total payout for the full year equal to 150% of his or her respective 2017 QIP target award opportunity.
Cumulus’ SIP was adopted to, among other things, “further align key senior operating executives’ interests with those of stakeholders in light of the decline in value of outstanding equity awards.”
The 2017 SIP provides participants the opportunity to earn cash payments in rate-able installments over the three remaining fiscal quarters of 2017, based on the company’s year-to-date performance at the end of the respective period.
In order to be eligible to participate in the 2017 SIP, participants must agree to the cancellation of all of their respective outstanding equity incentive awards.
Under the 2017 SIP, target award opportunities are $1.47 million for CEO Mary Berner; $587,500 for EVP/Treasurer and CFO John Abbot; $480,000 for General Counsel Richard Denning; and $120,000 for Suzanne Grimes, Cumulus’ EVP/Corporate Marketing and President of Cumulus’ Westwood One division.
The “Term Lender Group,” Cumulus’ largest economic constituency, approves of the QIP and SIP plans. It notes that overruling the objection would keep Cumulus on an “ordinary course” — one in which “awarding reasonable, market-based incentive compensation to their senior employees, subject to the satisfaction of challenging performance metrics” is permissible.
Cumulus adds that the individual awards under the QIP and SIP were benchmarked by an independent compensation consultant—Willis Towers Watson—to consider their appropriateness in light of prevailing market practice.
In fact, that analysis confirmed that awards under the QIP and SIP for the six Cumulus executives “result in those individuals earning total direct compensation that is below the
bottom quartile of industry peers.”
“Importantly, the Debtors did not develop the Adjourned Programs under the cloak of night, ignorant of the concerns or expectations of their primary economic stakeholders,” Cumulus’ legal counsel at Paul, Weiss, Rifkind, Wharton & Garrison LLP note in a 38-page filing made Friday (3/9) with the U.S. Bankruptcy Court for the Southern District of New York.
The “Creditor’s Committee” feels otherwise, and Cumulus is not pleased.
Cumulus’ attorneys write:
“The Creditors’ Committee’s current objection is thus equal parts disturbing and telling: when its members proposed a transaction in which they were slated to become the majority owners of the Debtors’ business, with a clear interest in maximizing the
value of the Debtors’ estates, their support for the Adjourned Programs (and willingness to
underwrite their entire cost) was unequivocal. Proving the adage that it is more revealing to watch what someone does, not what they say, it is only now, after the Debtors determined, in good faith and in the exercise of their business judgment, to pursue a different restructuring transaction, that these members have done an about-face. Now, the Creditors’ Committee pursues an objection that will, if successful, significantly erode the value of the Debtors’ estates and produce a harmful whipsaw effect among the Debtors’ senior management over the uncertainty of whether they will receive incentive compensation they have worked (and are continuing to work) towards. This uncertainty is to the detriment of all of the Debtors’ stakeholders. The Court should not countenance such a result.”
