An oversight office and union organizations are challenging bankrupt Alpha Natural Resources’ proposal to give bonuses of up to $11.9 million to top employees even as it seeks to cut health and insurance benefits to some retirees.
The coal company, which has operations in Kentucky, said in a court motion that it needs to pay incentive bonuses to executives playing key roles in efforts to restructure the company and return it to profitability.
However, the U.S. Trustee Program argued that the Alpha executives already have a duty to do the work covered under the bonus plan, and are paid well to do it.
The trustee’s office, a division of the Justice Department, serves as a watchdog in bankruptcy cases.
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The company, claiming it “desperately needs” to save $3 million, has asked to end health and life-insurance benefits for about 1,200 retirees, according to the trustee’s objection.
At the same time, Alpha is seeking potential bonuses for 15 key employees that could total up to four times that much, the trustee said.
“The facts and circumstances of the case do not justify the payment of such exorbitant bonuses to its already highly compensated executives,” the trustee’s office said.
The United Mine Workers of America and the UMW Health & Retirement Funds also have motions pending against the proposal.
Alpha Natural Resources became the nation’s second-largest coal producer after it bought Massey Energy in 2011 for $6.7 billion, according to a statement from Kevin S. Crutchfield, its chief executive officer.
The Bristol, Va.-based company, with mines in Eastern Kentucky, West Virginia, Virginia, Pennsylvania and Wyoming, had $7 billion in revenue and 14,500 employees in 2011, but that didn’t last long, according to court documents.
Alpha is among a number of coal companies struggling with debt amid a sharp downturn in production in Central Appalachia, where the company has most of its mines.
Crutchfield cited a number of factors for Alpha’s financial trouble, including a boom in natural gas production that has driven down prices and caused many power plants to shift from coal; slower-than-expected economic growth in the U.S., Europe and China; and environmental rules that have added to compliance costs and reduced demand for coal to make electricity.
The company has idled or closed more than 80 mines since 2011, most of them in Central Appalachia, and cut its workforce by nearly half, according to Crutchfield’s statement.
“The fall has been precipitous and the effect on (Alpha) has been extreme — more so than anyone could have anticipated a year ago,” Crutchfield said in a statement when Alpha and 149 affiliates filed for bankruptcy in August.
Despite the rough patch, however, Alpha has significant “structural advantages” over some competitors, Crutchfield said, including big reserves of coal used in making steel; operations in several coal basins; and infrastructure such as an export terminal.
Cruthfield said Alpha managers were confident the company would be among the survivors of the downturn.
However, the expertise of senior managers will be critical to achieve a successful restructuring during difficult times, which is why the company wants to pay them bonuses, it said in a motion.
Some managers lost compensation that was in the form of company equity, and the pressure on them to maintain the company’s viability continues to increase, according to the motion.
The proposed 2016 bonuses are designed to provide incentives to reach performance goals.
The payments will motivate Alpha’s senior management “to continue to work hard” to maximize the value of the company to creditors, according to a company motion.
The proposal calls for a bonus pool ranging from $3.4 million to $11.92 million to be divided among executives, based on how well the company meets goals in areas such as cutting costs.
Some executives, who were not named in public documents, could get bonuses more than double their salary. The executives would have to meet the performance targets to get bonuses.
However, the trustee’s office and other opponents argued the goals were set so low that they would guarantee bonuses to the executives, without demonstrating any benefit to creditors.
As in T-ball, the awards “do not depend on winning,” according to attorneys for the UMW Health & Retirement Funds.
Those attorneys also said the bonuses would reward Alpha managers “for doing nothing more than their jobs.”
Those objecting to the proposal said the bonuses would be bigger than the managers would have gotten under the company’s old incentive plan, and would be inappropriate given the company’s finances.
The proposal eliminated profitability as one of the target goals, so the managers could get bonuses without causing Alpha to earn any money, the trustee said.
Alpha said in a response filed Wednesday that the objections were “littered” with inaccuracies. The most egregious was an unfounded allegation that the proposal would create an incentive to managers to close profitable mines in order to meet goals, the company said.
Alpha’s attorneys said the executives probably wouldn’t meet the targets needed for the highest bonuses.
There has been no ruling on the proposal. It is set for a hearing Thursday.