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Managing employee pay through corporate restructuring or bankruptcy

Compensation programs that support key talent strategies are critical in distressed environments. WTW partners with legal teams and key stakeholders to build the best outcomes for businesses and employees.

We have seen marked acceleration in the pace of corporate restructuring and bankruptcies in the past several years. We also have seen heightened scrutiny of all aspects of compensation programs and practices by large groups of stakeholders, including equity holders, secured and unsecured lenders, private equity sponsors, hedge funds and other entities that have specific views about employee pay.

This scrutiny has created an increasing need for organizations to design and deliver employee compensation programs that motivate, incentivize and retain critical executives and employees in an environment filled with uncertainty, anxiety and turmoil. In the context of a restructuring, it is important to have a market-leading partner that understands how to effectively address stakeholders’ concerns while balancing the need to manage talent. At WTW, we bring decades of such experience to every engagement.

Why compensation is different in distressed environments

Organizations going through restructuring or bankruptcy have a unique set of compensation challenges. Every stakeholder in a distressed organization stands to lose value, and that directly affects how compensation is considered. Multiple reasons will change the way distressed organizations approach employee pay:

  • Employee retention and motivation become critical challenges
  • Incentives often are refocused on the key objectives of the turnaround
  • Certain negotiations can give creditors a greater say on executive compensation
  • If bankruptcy is a possibility, bankruptcy laws establish rules and precedents that influence creditor views on employee pay as well as guide court judgments
  • In court-assisted processes, an employee designation of “insiders” is created, and the bankruptcy code limits flexibility in the level and design of compensation for these individuals

Managing employee pay through uncertainty

For more than two decades WTW has led the market, working with hundreds of clients on their approach to employee pay in a corporate restructuring or bankruptcy.

How we support distressed organizations

Working closely with legal counsel and key stakeholders, we:

  1. Activity feed

    Initiate projects and review relevant information

    • Define project objectives and timeline
    • Discuss data requirements
    • Define relevant talent markets
    • Gather and review data
  2. Organization

    Review market practices

    • Conduct a competitive compensation assessment across all elements of total direct compensation
    • Gather relevant market data on retention and incentive programs among similarly situated organizations
  3. Money

    Develop recommendations

    • Develop preliminary recommendations for compensation actions
    • Finalize designs and conduct costing analysis
    • Review outcomes and refine as necessary
    • Prepare a board-ready report summarizing market data and recommendations

Through this process we develop plans that reflect our clients’ specific restructuring timelines, which may include:

  • Pre-petition retention strategies geared toward top executives and insiders
  • Key executive incentive plans requiring court approval
  • Key employee retention plans (typically a non-insider retention plan)
  • Board of director pay
  • Emergence equity plans

When you partner with WTW’s team of experts, we are with you every step of the way, from initial restructuring plans to preparing for and participating in expert testimony, including depositions and live testimony. Experience the WTW difference.

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