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EXECUTIVE COMPENSATION IN CHAPTER 11

BANKRUPTCY CASES: HOW MUCH IS TOO MUCH?

HEARING

BEFORE THE

SUBCOMMITTEE ON 

COMMERCIAL AND ADMINISTRATIVE LAW

OF THE

COMMITTEE ON THE JUDICIARY 

HOUSE OF REPRESENTATIVES

ONE HUNDRED TENTH CONGRESS

FIRST SESSION

APRIL 17, 2007

Serial No. 110–11

Printed for the use of the Committee on the Judiciary

(

Available via the World Wide Web: http://judiciary.house.gov 

(II)

COMMITTEE ON THE JUDICIARY 

JOHN CONYERS, JR., Michigan, Chairman 

HOWARD L. BERMAN, California 

RICK BOUCHER, Virginia 

JERROLD NADLER, New York 

ROBERT C. SCOTT, Virginia 

MELVIN L. WATT, North Carolina 

ZOE LOFGREN, California 

SHEILA JACKSON LEE, Texas 

MAXINE WATERS, California 

MARTIN T. MEEHAN, Massachusetts 

WILLIAM D. DELAHUNT, Massachusetts 

ROBERT WEXLER, Florida 

LINDA T. SA ́ NCHEZ, California 

STEVE COHEN, Tennessee 

HANK JOHNSON, Georgia 

LUIS V. GUTIERREZ, Illinois 

BRAD SHERMAN, California 

TAMMY BALDWIN, Wisconsin 

ANTHONY D. WEINER, New York 

ADAM B. SCHIFF, California 

ARTUR DAVIS, Alabama 

DEBBIE WASSERMAN SCHULTZ, Florida 

KEITH ELLISON, Minnesota 

LAMAR SMITH, Texas 

F. JAMES SENSENBRENNER, JR., 

Wisconsin 

HOWARD COBLE, North Carolina 

ELTON GALLEGLY, California 

BOB GOODLATTE, Virginia 

STEVE CHABOT, Ohio 

DANIEL E. LUNGREN, California 

CHRIS CANNON, Utah 

RIC KELLER, Florida 

DARRELL ISSA, California 

MIKE PENCE, Indiana 

J. RANDY FORBES, Virginia 

STEVE KING, Iowa 

TOM FEENEY, Florida 

TRENT FRANKS, Arizona 

LOUIE GOHMERT, Texas 

JIM JORDAN, Ohio

PERRY APELBAUM, Staff Director and Chief Counsel 

JOSEPH GIBSON, Minority Chief Counsel 

SUBCOMMITTEE ON COMMERCIAL AND ADMINISTRATIVE LAW

LINDA T. SA ́ NCHEZ, California, Chairwoman 

JOHN CONYERS, JR., Michigan 

HANK JOHNSON, Georgia 

ZOE LOFGREN, California 

WILLIAM D. DELAHUNT, Massachusetts 

MELVIN L. WATT, North Carolina 

STEVE COHEN, Tennessee 

CHRIS CANNON, Utah 

JIM JORDAN, Ohio 

RIC KELLER, Florida 

TOM FEENEY, Florida 

TRENT FRANKS, Arizona

MICHONE JOHNSON, Chief Counsel 

DANIEL FLORES, Minority Counsel 

(III)

C O N T E N T S 

APRIL 17, 2007

OPENING STATEMENT 

Page 

The Honorable Linda T. Sa ́nchez, a Representative in Congress from the 

State of California, and Chairwoman, Subcommittee on Commercial and 

Administrative Law ............................................................................................. 1

The Honorable Chris Cannon, a Representative in Congress from the State 

of Utah, and Ranking Member, Subcommittee on Commercial and Administrative Law ........................................................................................................... 2

The Honorable John Conyers, Jr., a Representative in Congress from the 

State of Michigan, Chairman, Committee on the Judiciary, and Member, 

Subcommittee on Commercial and Administrative Law .................................. 4

WITNESSES 

Mr. Damon A. Silvers, Associate General Counsel, American Federation of 

Labor and Congress of Industrial Organizations, Washington, DC 

Oral Testimony ..................................................................................................... 8

Prepared Statement ............................................................................................. 10

Ms. Antoinette Muoneke, Association of Flight Attendants—CWA, Federal 

Way, WA 

Oral Testimony ..................................................................................................... 14

Prepared Statement ............................................................................................. 15

Mark S. Wintner, Esquire, Stroock & Stroock & Lavan LLP, New York, 

NY 

Oral Testimony ..................................................................................................... 17

Prepared Statement ............................................................................................. 19

Richard Levin, Esquire National Bankruptcy Conference, New York, NY 

Oral Testimony ..................................................................................................... 21

Prepared Statement ............................................................................................. 23

APPENDIX 

MATERIAL SUBMITTED FOR THE PRINTED HEARING RECORD

Prepared Statement of the Honorable Stephen I. Cohen, a Representative 

in Congress from the State of Tennessee ........................................................... 43

Material for the printed hearing record submitted by the Association of Professional Flight Attendants (APFA), to the Honorable Linda Sa ́nchez: 

News Release concerning American Airlines Flight Attendants’ Nationwide Protest ................................................................................................... 44

Submission entitled ‘‘2003 Sacrifices from AA Flight Attendants Restructuring Agreement’’ ........................................................................................ 45

Submission entitled ‘‘American Airlines Flight Attendant Facts’’ ............... 47

Submission entitled ‘‘APFA FACTS On American Airlines Executive 

Bonus vs Employee Concessions’’ ................................................................ 48

Page

IV

Prepared Statement of Patricia A. Friend, International President, Association of Flight Attendants—CWA, AFL-CIO ....................................................... 49

OFFICIAL HEARING RECORD 

MATERIAL SUBMITTED BUT NOT REPRINTED

Cover letter regarding Proxy Statement filed by UAL Corp., from Mark Anderson, Vice President of Government Affairs, UAL Corp., to the Honorable 

John Conyers, Jr., Chairman, Committee on the Judiciary, submitted by 

the Honorable Chris Cannon, a Representative in Congress from the State 

of Utah, and Ranking Member, Subcommittee on Commercial and Administrative Law 

Form DEF 14A UAL Proxy Statement submitted by the Honorable Chris 

Cannon, a Representative in Congress from the State of Utah, and Ranking 

Member, Subcommittee on Commercial and Administrative Law 

(1)

EXECUTIVE COMPENSATION IN CHAPTER 11 

BANKRUPTCY CASES: HOW MUCH IS TOO 

MUCH? 

TUESDAY, APRIL 17, 2007

HOUSE OF REPRESENTATIVES, 

SUBCOMMITTEE ON COMMERCIAL

AND ADMINISTRATIVE LAW, 

COMMITTEE ON THE JUDICIARY, 

Washington, DC.

The Subcommittee met, pursuant to notice, at 10:34 a.m., in 

Room 2141, Rayburn House Office Building, the Honorable Linda 

Sa ́nchez (Chairwoman of the Subcommittee) presiding. 

Present: Representatives Sa ́nchez, Conyers, Johnson, Delahunt, 

Cohen, Cannon, Jordan, Feeney, and Franks. 

Ms. SA ́ NCHEZ. This hearing of the Committee on the Judiciary 

Subcommittee on Commercial and Administrative Law will come to 

order. 

Before we begin today’s hearing, out of respect for the victims 

and families of yesterday’s tragedy at Virginia Tech, I would like 

to begin this hearing by observing a brief moment of silence for 

those victims and their families. 

Thank you. 

I will now recognize myself for a short statement. 

As a result of many Chapter 11 bankruptcy proceedings, ‘‘the 

rich are getting richer while the poor are getting poorer,’’ as stated 

in a recent press release by the Northwest Flight Attendants 

Union. 

This is a compelling summary of a recent phenomenon that 

should concern all of us. Chapter 11 of the Bankruptcy Code was 

originally enacted to give all participants an equal say in how a 

business, struggling to overcome financial difficulties, should reorganize. Unfortunately, this laudable goal does not reflect reality, 

especially for certain participants in Chapter 11. 

This problem is clearly illustrated by the numerous Chapter 11 

cases in which chief executive officers receive outrageously large 

compensation and bonus packages while they simultaneously slash 

the wages, benefits and even jobs of the workers who are the backbone of those businesses. 

‘‘All too often,’’ as one bankruptcy judge recently observed, executive retention plans ‘‘have been widely used to lavishly reward, at 

the expense of the creditor body, the very executives whose bad decisions or lack of foresight were responsible for the debtor’s financial plight.’’

2

This is an issue that deserves more attention from this Committee. 

While I commend my colleagues on both sides of the aisle, Ranking Member Chris Cannon and Representative Bill Delahunt, for 

their efforts to address certain aspects of this problem, much more, 

unfortunately, still needs to be done. 

Here is just one example. The chief executive officer of UAL Corporation, the parent of United Airlines, received compensation 

worth $39.7 million in 2006, just after UAL emerged from 3 years 

of Chapter 11 bankruptcy protection. During the course of its bankruptcy, however, UAL terminated pensions for 120,000 workers 

and shifted $5 billion in pension obligations to the PBGC, resulting 

in the largest pension default in the history of the United States, 

according to the Associated Press. 

These inequalities are astounding. The Executive Compensation 

Committee of the American College of Bankruptcies recently issued 

a report noting that employee retention and incentive compensation programs present a ‘‘daunting challenge.’’ It continued, there 

are few issues faced by Chapter 11 debtors that are more difficult 

and potentially contentious than management compensation issues. 

Accordingly, I look forward to hearing the testimony of the witnesses at today’s hearing. To help us further explore these issues, 

we have a truly notable witness panel. 

We are pleased to have Damon Silvers, Associate General Counsel for the AFL-CIO; Antoinette Muoneke, a United Airlines flight 

attendant and representative of the Flight Attendants Association; 

Mark Wintner, expert on employee benefits and executive compensation; and Richard Levin, vice chair of the National Bankruptcy Conference. 

Rest assured that it is my intention to consider in future hearings other aspects of the imbalance that exists in Chapter 11 concerning management and labor, particularly with respect to collective bargaining agreements and retirement benefit. Additionally, 

there are other issues in bankruptcy that should be addressed by 

this Committee, including the compensation of trustees in Chapter 

7 cases. 

It has been many years since Congress has examined these 

issues. I know Committee Chairman John Conyers shares my concern about the urgent need to refocus and conduct a long overdue 

analysis of Chapter 11 and how it impacts workers. 

I would now like to recognize my colleague, Mr. Cannon, the distinguished Ranking Member of the Subcommittee, for any opening 

remarks he may have. 

Mr. CANNON. Thank you, Madam Chair. 

Today we are considering an issue of common interest regarding 

how to best compensation executives who must rescue and rehabilitate enterprises contributing products, services and jobs to our society under Chapter 11 of the Bankruptcy Act. 

Chapter 11 seeks to reconcile many independent interests, just 

like other chapters of the Bankruptcy Code, but the paramount aim 

of Chapter 11 is to save companies that can still be saved. 

To reach that aim, we have to strike the right balance between 

conserving founder companies’ resources and spending enough of 

those resources to keep on track the management teams that can 

3

turn those companies around and return them to prosperity. If we 

don’t get that right, the entire Chapter 11 system is undermined. 

In the Bankruptcy Abuse and Consumer Protection Act, we enacted a number of limitations on executive compensation in Chapter 11 settings. Several of these limitations, codified in section 

503C1 of the act, are known as Key Employee Retention Plan or 

KERP’s provisions. 

Under the KERP’s provisions, subject to court approval, special 

retention packages designed to induce key executive personnel to 

stay on at a Chapter 11 company can now be made only when they 

are, first, essential to the retention of an individual because the individual has a bona fide job offer from another business at an equal 

or greater salary; two, essential to the survival of the business; 

and, three, do not exceed certain levels indexed to prior year nonmanagement pay executive retention bonuses. 

Prior to enactment, concerns were noted about these provisions; 

the proponents offered that they were necessary to prevent Enrontype abuses. Others, however, including me, believe that they are 

unduly restrictive. I believe that such tight restrictions on management compensation are merited only where there is evidence of insider negligence, mismanagement or fraudulent conduct that contributed in whole or in part to the company’s insolvency. 

Otherwise, I believe we would run the risk of hampering companies’ best chance to survive and prosper by failing to retain talented and responsible management already intimately familiar 

with the company. Some say that if we focus too much on such considerations, we run the risk of paying management too much to 

stay while potentially cutting labor pay and benefits. 

In the last Congress, such arguments led to the introduction of 

legislation that would have extended the already too restrictive 

KERP’s provisions to performance and incentive pay bonuses and 

other forms of executive compensation essential to competing in the 

market for executive personnel. 

That argument is false. It is critical that a Chapter 11 debtor be 

able to retain management that is dedicated to maintaining the 

company’s value, not out of self-interest of executives but for the 

benefit of all of its creditors, investors, employees and stakeholders. 

All too often, companies that fail to reorganize successfully are converted to Chapter 7 for liquidation, where not only do the creditors 

receive pennies on the dollar, but employees face a much bleaker 

prospect of losing their jobs. 

Courts have now had experience implementing the KERP’s provisions and companies have attempted to survive under them. This 

hearing presents a good opportunity to see whether the provisions 

are working or are counterproductive. 

What the record shows is that in practice the KERP’s provisions 

have generated some controversy. In the Dana Corp. case, for example, the bankruptcy court in Manhattan denied an initial executive compensation plan. 

That plan consisted of the following: a base salary for the CEO 

of $1.552 million and of $500,000 to $600,000 for other executives; 

an annual incentive program or AIP that could have paid the executives anywhere from $336,000 to $528,000 and the CEO up to 

$2 million; a completion bonus that would provide a minimum of 

4

$400,000 to $560,000 for executives and $3.1 million for the CEO 

upon the effective date of the plan of the reorganization as well as 

uncapped bonus based on the total enterprise value of the debtors 

6 months after the effective date of the reorganization plan; and finally, four, a severance non-compete package worth more than 

$167,000 per month for up to 18 months if the CEO was terminated for anything other than cause. 

Without knowing more, one can imagine that such a plan might 

be unduly generous. The court found it so, focusing largely on the 

conclusion that the plan’s guaranteed payments to executives could 

only be treated as retention payments subject to section 503C1 

rather than incentive payments subject to a business judgment rule 

under the sub-provisions of section 503C3. 

In November 2006, the court approved a modified and more modest plan. The approved plan was found to be an incentive plan escaping the KERP’s provisions, but only because the court reviewed 

the plan holistically and did not draw on the features of the plan 

that were similar to those previously rejected for violating the 

KERP’s provisions. The court emphasized that merely because a 

compensation plan has some retentive effect does not mean that 

the plan overall is retentive rather than incentivizing in nature. 

Under this approach, if a plan is on the whole incentivizing in 

nature, it may not be subject to otherwise applicable KERP’s provisions. Some believe that this approach opens up a loophole in the 

Bankruptcy Code and that we should close that loophole. Others 

may believe that it shows all the more that restrictions like 

KERP’s provisions need to be imposed on incentive pay and other 

forms of executive compensation. 

I believe that the Dana Corp. case shows in one important, reallife example how the KERP’s provisions have underserved the 

needs ot Chapter 11 companies for flexibility in structuring executive compensation packages that can keep the right management 

teams in place. I believe that it shows that experienced bankruptcy 

courts see the same thing and are straining to interpret the code 

in a way that would help keep Chapter 11 companies from becoming Chapter 7 economic shipwrecks. 

I look forward today to hearing from all of the witnesses on these 

and other cases as we hear their views on how the KERP’s provisions are working or not working in practice and I hope this hearing helps us better understand the importance of not undercutting 

the needs of Chapter 11 companies for essential leadership. 

Thank you, Madam Chair. I yield back. 

Ms. SA ́ NCHEZ. I thank the gentleman for his statement. 

I would now like to recognize Mr. Conyers, a distinguished Member of the Subcommittee and the Chairman of the Committee on 

the Judiciary. 

Mr. Conyers? 

Mr. CONYERS. Thank you so much, Madam Chairperson. 

Let me tell you how pleased I am that you and Chris Cannon, 

your Ranking Member, Bill Delahunt from Massachusetts, are all 

looking at something that hasn’t been examined for some 20 or 

more years. 

What we are talking about is the inequality in incomes in this 

great country of ours. I want to be the first to say it here: the rich 

5

are getting richer, the poor are getting poorer. One percent of the 

top 300,000 people make nearly, or aggregate nearly as much as 

the 150 million others in the tax scheme in the United States of 

America. 

So we are looking at this section 11 for the first time and I want 

to congratulate you. 

I would like unanimous consent to have entered in at the end of 

my comments the ‘‘Nation’’ article of April 23, 2007, entitled, ‘‘A 

Time to Act on Inequality.’’

Ms. SA ́ NCHEZ. Without objection, so ordered. 

[The submission from Mr. Conyers follows:]

6


Nation.eps
7

Mr. CONYERS. Now, too often we have got executives receiving 

extravagant multi-million-dollar bonus packages, stock options, and 

golden parachutes, while the workers at the same time are being 

drastically reduced in their pay, their pensions, their health care. 

And sometimes, of course, they lose everything. 

We are just finally getting around to it and I am so proud of this 

Subcommittee on Commercial and Administrative Law, that we are 

examining this question. It is way, way overdue. 

Now, you talked about Glenn Tilton at United Airlines, but I 

have got a friend of mine in Detroit at Ford Motor Company, Alan 

Mullaley, who was paid—he just started—$28 million in the first 

4 months of his job, from a company that has reported a $12.7 billion loss for last year and is reducing and relocating factories all 

across the country. 

Ford, General Motors, Daimler-Chrysler prepare to start negotiations with the unions to obtain concessions and labor savings with 

the current contracts, how do they do that? Well, I will tell you. 

It is because section 1113 of the Bankruptcy Code allows the debtors to avoid contractual obligations under collective bargaining 

agreements with their workers. 

People keep asking why is the UAW conceding so much to the 

corporations. Well, it is because the corporations tell them we are 

going into bankruptcy, we are going into court, and we have got the 

authority to eliminate contractual obligations. 

How many lawyers would enter into an agreement and then one 

of them calls back the other in a year and says, well, things have 

gone sour, we have got to renegotiate, my friend. They would be 

asked if they lost their minds. But this is in bankruptcy law at this 

point. 

And so it is time we try to deal with this. The gentleman from 

Massachusetts, Senator Kennedy, tried vainly to improve on it. I 

introduced legislation with Evan Bayh of Indiana just in the last 

Congress to try to at least make the executives report the amounts 

of money that they are receiving. This goes in under the radar 

screen. 

And so this hearing couldn’t have come at a more appropriate 

time. I commend the Members of the Subcommittee, but especially 

the Chairwoman. 

Ms. SA ́ NCHEZ. Thank you for your statement, Mr. Conyers. 

Without objection, other Members’ opening statements will be included in the record. 

And without objection, the Chair will be authorized to declare a 

recess of the hearing. 

I am now pleased to introduce the panel of witnesses for today’s 

hearing. Our first witness is Damon Silvers, associate general 

counsel for the AFL-CIO. Prior to his current role, Mr. Silvers was 

a law clerk for the Delaware Court of Chancellery for Chancellor 

William T. Allen and Vice Chancellor Bernard Balick. Mr. Silvers 

is also a member of the American Bar Association Subcommittee 

on International Corporate Governance. 

Welcome. 

Our second witness is Antoinette Muoneke. Ms. Muoneke has 

been a flight attendant for United Airlines since 1979. She resides 

in Federal Way, Washington. 

8

Thank you for being here. 

Our third witness is Mark Wintner, a partner at the law firm, 

Stroock and an expert on employee benefits law and executive compensation. Mr. Wintner chairs the American Bar Association Business Law Employee Benefit Subcommittee on Planned Termination, Merger and Bankruptcy. Mr. Wintner also serves as a 

member of the ABA’s Joint Council on Employee Benefits. 

Thank you for being here. 

And our final witness is Richard Levin, vice chair of the National 

Bankruptcy Conference. Mr. Levin is a partner at Skadden Arps, 

concentrating on corporate restructuring and solvency and bankruptcy issues. Mr. Levin was counsel to a House Judiciary Committee Subcommittee and was one of the principal authors of the 

Bankruptcy Code and the Bankruptcy Reform Act of 1978. 

We appreciate you being here this morning as well. 

Without objection, your written statements in their entirety will 

be placed into the record and so we would ask that you limit your 

oral testimony to 5 minutes. 

You will note that we have a lighting system that starts with a 

green light. At 4 minutes, it turns yellow. That is your warning 

that you have a minute to try to summarize your testimony. At 5 

minutes, the light will turn red, notifying you that you are in fact 

out of time. 

We will let you go a little bit over to let you complete your 

thoughts, but please try to be mindful of the time and the lights. 

After each witness has presented his or her testimony, Subcommittee Members will be permitted to ask questions subject to 

the 5-minute limit. 

Mr. Silvers, will you please proceed with your testimony? 

TESTIMONY OF DAMON A. SILVERS, ASSOCIATE GENERAL 

COUNSEL, AMERICAN FEDERATION OF LABOR AND CONGRESS OF INDUSTRIAL ORGANIZATIONS, WASHINGTON, DC 

Mr. SILVERS. Thank you, Madam Chairperson. My name is 

Damon Silvers. I am an associate general counsel of the American 

Federation of Labor and Congress of Industrial Organizations. I 

will try to be brief so that my client to my left can speak, who I 

think really has point of precedence here. 

In 2002, the AFL-CIO helped over 5,000 laid off Enron workers, 

non-union workers, recover up to $13,500 in severance money that 

had been taken away from them in the bankruptcy process. During 

that time, the chief executive officer of Enron—this is after the departure of Ken Lay—during that time the chief executive officer 

was Steve Cooper, a principal in the turnaround group of Zolfo-Cooper. 

Enron, of course, liquidated. It was one of those bad situations 

that Congressman Cannon was referring to. But when the case 

completed, Steve Cooper’s firm received about $120 million in compensation for the work he did. 

Mr. Cooper then went out and bought for himself a $20 million 

penthouse apartment on Fifth Avenue, perhaps the most expensive 

piece of apartment real estate purchased in New York to date. 

Contrast Steve Cooper’s fate with that of my friend Louis Allen, 

who was a mid-level executive at Enron. He was in charge of transVerDate 0ct 09 2002 09:34 Jun 26, 2007 Jkt 000000 PO 00000 Frm 00012 Fmt 6633 Sfmt 6601 F:\WORK\COMM\041707\34755.000 HJUD1 PsN: 34755
9

portation at Enron. Mr. Allen was a single father, the first person 

in his family to go to college and to work in management. Mr. Allen 

lost his job, his 401(k), his health insurance and his home and, 

with his 11-year-old daughter, had to return to living with his 

mother, who worked as a grocery clerk in Houston. 

Louis Allen, in the end, got only a small fraction of the severance 

he was promised by Enron, and in the fall of 2002, still without a 

job and living with his mother and 11-year-old daughter, Mr. Allen 

had a stroke and died at the age of 44. Neither he nor his mother 

nor his daughter has, to date, received any meaningful recovery 

from his lost pension. 

The AFL-CIO is extremely proud of the role that the working 

people of this country played in standing up for the Enron workers, 

but we do not believe that the outcome I just described, on the one 

hand for Mr. Cooper and on the other hand for Mr. Allen, could be 

described by any sane person as just. And in this respect, Enron 

was not the exception but the rule. 

Let me give you a couple of examples from some more recent 

well-known bankruptcies. United Airlines: all United employees, 

including Ms. Muoneke to my left, lost their real pension plans and 

all the retirees had substantial cuts in their retiree health benefits. 

United flight attendants, who before the bankruptcy had incomes 

typically in the 30’s—$30,000, not $30 million—took pay cuts of 17 

percent. 

I don’t think most of us can possibly comprehend what it means to be living on a $30,000 a year income and take a 17 percent pay 

cut. 

As you mentioned, Madam Chairwoman, the CEO got $39 mil- lion in stock and an $840,000 cash bonus. 

Delphi Corporation: tens of thousands of jobs gone. Motions in front of the bankruptcy court to cut middle class wages to $12.50 

an hour, and in parallel, motions in front of that court for close to 

$500 million in total executive comp, $40 million of which have 

been granted. 

Dana Corp.: Congressman Cannon, I think, described in great detail what the executive comp package that was eventually approved 

was. For those of us who may be slow on the math, that is about 

$7 million a year in potential comp that was awarded by the court, 

following the Congress’s attempt to rein these matters in, while simultaneously that same company is seeking to cut pay, to end programs, to end benefits for workers such as life insurance, long-and 

short-term disability, even tuition reimbursement. And to completely eliminate Dana’s obligation to pay retiree health care benefits. 

Like so much of our system of business regulation and corporate 

governance, our business bankruptcy system has become a vehicle 

for the transfer of evermore staggering amounts of wealth from a 

variety of parties, but in particular from long-term employees, into 

the hands of a very, very small number of executives and turnaround specialists. 

As was discussed earlier, Madam Chairwoman, Congress has 

tried to rein in this intolerable trend by placing strict limitations 

on so-called retention bonuses in bankruptcy. Unfortunately and 

predictably, the corporate response has been to relabel the same 

10

1The Houston Chronicle, 3/28/2006. 

amount of money and keep paying it, and the courts appear to be 

going along with that maneuver. 

The bankruptcy system has become a mere mirror of the excesses 

found in the larger corporate culture, but there are structural reasons why those excesses are particularly harmful in bankruptcy. 

Those structural reasons—and I will try to wind up here—those 

structural reasons, the central aspect of them is the fact that bankruptcy is an environment in which all contracts are potentially 

breachable. And so the typical rationale for focusing executive behavior on one particular constituency, the equity of the company, 

does not apply in bankruptcy. 

And the further harmful aspect of this is the incentive effect on 

executives who are contemplating from the perspective of a company not yet bankrupt, who are contemplating going into bankruptcy and declaring a war of choice against their employees and 

their communities. 

In response, the AFL-CIO believes the Congress should take two 

steps to address these problems with executive pay. First, the sorts 

of procedural protections that Congress recently put in place with 

respect to KERP’s should be brought in to cover executive pay in 

its totality so that the sort of game-playing that Congressman Cannon alluded to cannot take place. 

Secondly, Congress should mandate that pre-petition executives, 

executives who have not filed yet, who are seeking to breach contractual commitments to their employees should have to personally 

share the pain in an amount proportional to what they are asking 

their colleagues to bear. Such a measure would focus the minds of 

executives contemplating bankruptcies, as I have said, as a war of 

choice, before they made any decisions that the rest of us might 

come to regret. 

The AFL-CIO looks forward to further hearings and I thank you 

for your time. 

[The prepared statement of Mr. Silvers follows:]

PREPARED STATEMENT OF DAMON A. SILVERS

Good morning, Chairwoman Sa ́nchez, my name is Damon Silvers and I am an Associate General Counsel of the American Federation of Labor and Congress of Industrial Organizations. First, let me express the labor movement’s gratitude to you 

and the Committee for holding this hearing on the enormously important question 

of whether executive compensation in our business bankruptcy system is fulfilling 

the overall purposes of the bankruptcy code. 

In 2002, the AFL-CIO assisted over 5,000 laid off non-union Enron workers in 

their efforts to obtain the severance payments they needed to live on while they 

found new work. After months of litigation in the bankruptcy courts, we obtained 

a settlement which paid the workers up to $13,500 in lost severance pay. During 

that time the Chief Executive Officer of Enron was Steve Cooper, a principal in the 

turnaround firm of Zolfo Cooper. Enron of course liquidated, and when the case 

completed, Steve Cooper’s firm asked from the court a $25 million ‘‘success fee,’’ 

even though the Justice Department’s U.S. Trustee Program uncovered unacceptable billing practices (Cooper eventually agreed to cut this fee in half). This was 

after Cooper and his firm were already paid $107 million for their work.1 Cooper recently bought a $20 million penthouse on 5th Avenue, one of the most expensive 

apartments sold in Manhattan during the real estate boom. 

Contrast Steve Cooper’s fate with that of Louis Allen, a mid-level executive at 

Enron. Lewis was a single father, the first person in his family to go to college and 

work in management. He lost his job, his 401k, his health insurance and his home, 

and with his daughter had to return to living with his mother, who worked as a 

11

2 Jessi D. Herman, Pay to Stay, Pay to Perform or Pay to Go?: Construing the Threshold Terms 

of 503 (C)(1) and (2), EMORY BANKRUPTCY DEVELOPMENTS JOURNAL, Fall 2006, 319

grocery clerk in Houston. Lewis Allen in the end only got a fraction of the severance 

he was promised. In the fall of 2002, still without a job and living with his mother, 

Lewis had a stroke and died at the age of 44. Neither he nor his mother nor his 

daughter has to date received any meaningful recovery from his lost pension. 

The AFL-CIO is extremely proud of the role the working people of this country 

played in standing up for the Enron workers. But we do not believe the outcomes 

I just described could be described by any sane person as just. And the outcome at 

Enron has much in common with the grotesque inequities workers experience 

throughout the business bankruptcy system today. 

Let me give you a couple of examples from some well-known recent bankruptcies. 

Polaroid—Upon filing for Chapter 11 in 2001, Polaroid reneged on its severance 

policies, and cut off all company payments for employees’ health, dental and life insurance plans. Six months later, a bankruptcy judge approved Polaroid’s plan to pay 

$4.5 million in retention bonuses to forty executives. The plan approved by the court 

provided for the most senior executives in the pool to receive bonuses of as much 

as 62.5% of their base pay as well as severance payments also equal to 62.5% of 

their base pay. Other executives would be eligible to receive bonuses and severance 

payments equaling 25 to 50% of their base salaries.2

United Airlines—United went into bankruptcy as a strategy to extract significant 

labor cost cuts. All United employees lost their defined benefit pension plans and 

retirees ended up with substantial cuts in their retiree health benefits. United employees took 15% to 40% pay cuts, including a 17% cut for flight attendants and 

40% cut for pilots. In total, over 50,000 United employees gave up several billions 

of dollars. At the end of the case, United proposed emergence stock grants for management worth $150 million in its reorganization plan—about 9% of the new stock 

of the company. Last year pay and stock worth $39 million was awarded to United 

CEO Glenn Tilton, including an $840,000 bonus (over 120% of his base salary). 

Delphi Corporation—Delphi, a large automotive supply company went into bankruptcy in 2005. Delphi immediately proposed to eliminating thousands of U.S-based 

jobs and cutting the middle class wages earned by people making sophisticated auto 

parts down to as little as $12.50 an hour. At the same time—mere weeks into its 

bankruptcy case—Delphi unveiled a Key Employee Compensation Program of sixmonth ‘‘bonus opportunities’’ and an emergence bonus plan consisting of $88 million 

for some 486 managers—some payments as much as 280% of salary. In addition, 

Delphi proposed to grant 10% of the reorganized Delphi’s equity to 600 executives, 

a program valued at $400 million, including $12.5 million in restricted stock for its 

top five executives. Just prior to bankruptcy, Delphi enhanced its severance program for 21 executives—severance that would pay out between $30 million and $145 

million. So far, Delphi has gotten approval of bonus plans worth about $40 million 

a year but the severance payments were not even subject to court oversight, nor was 

a signing bonus paid to Delphi’s new CEO in lieu of salary, since they were in place 

before Delphi filed its case mere days before the new Bankruptcy Code amendments 

took effect. 

Dana Corporation—Dana is another automotive parts supplier that filed a bankruptcy case in New York last year. Dana’s restructuring plan is to send as many 

good-paying U.S. manufacturing and assembly jobs as it can to Mexico and other 

low cost economies. For the jobs that are left, Dana asked the bankruptcy court to 

cut pay, and cut or eliminate a wide range of benefits such as life insurance, long 

and short term disability—even tuition reimbursement programs, and completely 

eliminate Dana’s obligation to pay retiree health benefits. Before they got to bankruptcy court on the workers’ pay and benefits, though, Dana’s senior executives renegotiated their employments contracts. Those contracts, which included significant 

stock-based compensation pre-bankruptcy, were not worth what the executives 

thought they’d be worth as a result of Dana’s bankruptcy. Under their renegotiated 

contracts, Dana’s CEO, between a base salary of $1 million per year plus bonuses, 

can earn $6.5 million a year while the company is in bankruptcy. The other five 

senior executives can earn combined annual compensation of $ 7 million while their 

company is in bankruptcy. 

US Airways—US Airways went through two bankruptcy cases in which the pilots’ 

pay alone was cut up to 50%. In addition, by the time the two cases were over, all 

the employees lost their pension plans and retiree health was all but eliminated. 

US Airways’ management got a bonus and severance program worth some $20–30 

million. 

Workers in chapter 11 cases across a wide range of industries (manufacturing, 

airline, trucking, retail and other service industries), are paying an enormous price 

12

3The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA), 11 

U.S.C. § 503(c)(1), provides that the debtor shall not make payments to insiders such as executives for the purpose of inducting such person to remain with the debtor’s business without an 

express finding by the court that 1. The payment or obligation is essential to keep the person 

from accepting a bona fide job offer for the same or greater pay; 2. The person’s continued retention is essential to the survival of the business; and 3. The amount of payment to made or obligation to be incurred does not exceed either 10 times the amounts paid to non-management employees in the same calendar year or 25 percent of the amounts paid to insiders in the calendar 

year preceding that in which the payment is to be made, as described by Yair Listoken, Paying 

for Performance in Bankruptcy: Why CEOs Should be Compensated with Debt, John M. Olin 

Center for Studies in Law, Economics, and Public Policy Research Paper No. 334, Yale Law 

School, p. 5, quoting Jason Brookner, Law Limits Executive Compensation, May/June EXECUTIVE

LEGAL ADVISOR (2006). 4See In re Dana Corp., 351 B.R. 95 (Bankr. S.D.N.Y. 2006). 

5 Reference recent Barney Frank hearing transcript. http://www.house.gov/apps/list/hearing/financialsvcs—dem/hr030607.shtml. The AFL-CIO tracks executive pay trends in public 

companies on our Paywatch website, http://www.paywatch.org. An analysis of 2007 proxy data 

on executive pay was posted earlier this month. 6 United for a Fair Economy/Institute for Policy Studies, ‘‘Executive Excess 2006’’. Total executive compensation data based on Wall Street Journal survey, 4/10/2006; all other years based 

on similar sample in BusinessWeek annual surveys of executive compensation, now discontinued. 

Average worker pay is based on U.S. Department of Labor, bureau of Labor Statistics, Employment, Hours, and Earnings from Current Employment Statistics Survey. 7 BusinessWeek, 4/22/2002. 

under threats that their labor agreements will be rejected, their jobs will be 

outsourced and retirement security threatened. Meanwhile, company executives and 

management move quickly to secure their own agreements and replace compensation such as supplemental executive retirements plans and stock-based compensation rendered worthless by the bankruptcy payment priorities with new, lucrative 

programs that insulate them from the economic dislocation of the bankruptcy. 

Like so much of our system of business regulation and corporate governance, our 

business bankruptcy system has become a vehicle for the transfer of ever more staggering amounts of wealth from a variety of parties, but in particular long term employees, into the hands of a very, very small number of executives and turnaround 

specialists. Recently, Congress tried to rein in this intolerable trend by placing strict 

limitations on so-called retention bonuses in bankruptcy.3 In response, the management community and their compensation consultants, with the full cooperation of 

the bankruptcy bench, appear to have continued the same type of post-petition payments to pre-bankruptcy management under new labels—most prominently now as 

‘‘incentive pay,’’ where highly speculative incentive targets are designed to guarantee some payment, even for delivering a business plan or reorganization plan, 

something reorganization fiduciaries are required to do anyway.4

Runaway executive compensation in bankruptcy takes place in two contexts—the 

context of the general explosion in executive compensation in American business, 

and the second is the unique and not well-understood context of corporate governance in bankruptcy. 

The bankruptcy system necessarily gives the debtor (aided by the bankruptcy 

courts) great latitude in crafting the path for businesses in Chapter 11 to return 

to financial health. Part of this approach is both explicitly by statute and even more 

so in practice for bankruptcy judges to grant substantial deference to both the immediate requests of the debtor in possession, and to give the debtor initial exclusivity in proposing a plan. These basic structures of the Code are absolutely necessary—but they left the courts ill-prepared to deal with the culture of CEO excess 

because what that culture is all about is the executives of the debtor in possession 

proposing a series of self-enriching transactions, usually with the support of a coterie of experts, again paid by the debtor in possession. The Lake Wobegon effect that 

has long been noted in executive compensation is particularly powerful in bankruptcy, where courts tend to apply a reasonableness test to applications for enormous post-petition executive pay packages based on the representations of one or 

more consultants that this package is within the third quartile for companies of this 

type. 

The bankruptcy system has become a mere mirror of the excess found in the larger corporate culture. The dimensions of that excess have recently been explored by 

the House Financial Services Committee.5 It is sufficient to point out here that 

Chief Executive Officer pay in 350 public companies with revenue in excess of $1 

billion has risen by 300% in the last fifteen years, and that CEO pay is on average 

411 times 6 that of the average worker, up from 107 times in 1990 and 42 times 

in 1980.7

13

8See for example, Gretchen Morgenson, ‘‘In Bankruptcy, ‘For Sale’ May Mean ‘You Lose’’’ New 

York Times, April 15, 2007, Section 3, p. 1. Thus Listokin (see above) is correct to argue that 

executives of bankrupt entities should not have incentives aligned with equity holders. But he 

is wrong to suggest those incentives should be aligned with unsecured creditors in a similar 

fashion to the way many believe executive pay should be aligned with the outcomes of equity 

holders in solvent corporations. Whatever the merits of this sort of position with respect to solvent corporations that are honoring their contractual commitments, these arguments do not address the circumstances of an insolvent entity. 9 Creating Pay for Performance in Financially Troubled Companies, JOURNAL OF APPLIED CORPORATION FINANCE, Winter 1994, 81–92. 

But runaway executive pay in bankruptcy is not just another example of this larger problem. There are structural reasons why when the excess and inequity that 

characterizes our corporate economy as a whole is moved to the bankruptcy setting 

it is both even less defensible and does significantly more harm. 

Much modern thinking in corporate governance begins from the distinction between constituents of the corporation with fixed contractual claims (lenders, suppliers, customers and workers) and those with variable, and in particular marginal 

claims (equity holders). But in bankruptcy the one thing that is clear is that contractual claims to one degree or another are not going to be honored. 

Secondly, the purpose of the Code is very clear—it is to preserve as much going 

concern value as possible, and in the process preserve the bankrupt firm for the explicit purpose of preserving both jobs and community economic structures. It is not 

to maximize the value of any given constituency of the firm—be that secured creditors, unsecured creditor, or most inappropriately, the pre-petition equity holders. 

Thus the notion, always ultimately hard to defend in any context, that corporate 

executives should be working to maximize one constituent’s value, is particularly inappropriate to bankruptcy law. And yet, as recent both journalism and academic articles make clear, debtors are increasingly organizing themselves around one dimensional measures of business success that easily allow for excessive executive compensation when those measures are achieved.8

This trend is a departure from the historic experience of distressed companies. 

Writing in 1994, Professors Stuart Gilson and Michael Vetsuypens found that one 

of the key forces ensuring accountability by incumbent management in a distressed 

company was the pressure from courts and creditors for executives to ‘‘share the 

pain.’’9

Congress should be most concerned about these dynamics when they involve management teams that have taken their companies into bankruptcy and then seek 

large compensation packages. Courts’ indulgence of this pattern creates reasonable 

expectations on the part of company managements that they can use the bankruptcy 

process to wipe out the equity (to which they have a fiduciary duty) and renege on 

contractual commitments to the most vulnerable of the company’s constituencies—

long term employees and host communities—and they will be ensured of not only 

keeping their pre-petition compensation, they are likely to receive further lavish rewards in addition to the packages they began with. 

The result is not only an imbalance in outcomes. These arrangements encourage 

bankruptcy processes that are dominated by an alliance of incumbent management 

with subgroups of creditors to the detriment often of the firm as a whole (see 

Gretchen Morgenson’s April 15 New York Times report of a new study of asset sales 

in bankruptcy) and of the very people the Code was intended to protect. After all, 

if we just wanted liquidations for the benefit of the secured creditors, we wouldn’t 

need a Bankruptcy Code in the first place. 

The AFL-CIO believes that Congress in response to the destabilization of the traditional balance represented by the Code, should take two steps to address the problems with executive pay in bankruptcy. First, the sorts of procedural protections 

that Congress recently put in place with respect to KERPS should be broadened to 

cover executive pay in bankruptcy as a whole. Second, Congress should mandate 

that pre-petition executives seeking to breach contractual commitments to their employees should have to personally share the pain in an amount proportional to what 

they are asking their colleagues to bear. Such a measure would focus the minds of 

executives contemplating bankruptcy as a ‘‘war of choice’’ against their employees 

and their communities. 

The AFL-CIO looks forward to further hearings as part of a larger examination 

of the fairness of the business bankruptcy process. Thank you.

Ms. SA ́ NCHEZ. Thank you for concluding. 

Ms. Muoneke, will you please begin your testimony? 

14

TESTIMONY OF ANTOINETTE MUONEKE, ASSOCIATION OF 

FLIGHT ATTENDANTS—CWA, FEDERAL WAY, WA 

Ms. MUONEKE. Thank you, Chairwoman Sa ́nchez and Members 

of the Subcommittee for holding this hearing. My name is Antoinette Muoneke. I have been proud to work as a flight attendant for 

28 years. 

After graduating from college I chose my career with a union 

contract that included a defined benefit pension plan and a means 

to follow my dream of providing for a family along with my own 

future. 

But today it sickens me that my chosen career makes me qualified to testify about the gross injustice taking place across corporate America with the blessings of the corporate bankruptcy 

laws. I will share my experiences, but I could easily point you to 

any of my colleagues. We are all facing the same uncertainties. 

When one of my colleagues said that she wanted the CEO of our 

company to explain to her daughter why she had to cancel her 

dance lessons, my heart knew her pain, but it gave me the courage 

to come here to tell you my story today. 

When I started my career, my union contract gave me the tools 

to have a secure future, but I knew I had to do my part. Saving 

and planning took on a more important role after the birth of my 

daughter. After a year of marriage, I found myself newly divorced 

and a single mother. 

My time off was devoted to my daughter. Our apartment near 

Seattle was rented and I was saving to buy a small condo. We were 

far from rich, but we had what we needed for a good life together 

and security for tomorrow. 

Life brings many challenges and in June of 2001 I was involved 

in a car accident that kept me off my job for a year. Health care 

expenses burned through my savings and I was forced to borrow 

against my 401(k), which at the time was only a supplemental 

source of retirement. 

In that same year, the events of September 11 were devastating 

and dramatically changed my job. Little did I know executives 

would take advantage of the industry’s downturn to drive executive 

wages up and their employee wages down. I cannot escape the conclusion that executives used the bankruptcy laws to enrich themselves at the expense of workers like me. 

The cuts forced during bankruptcy have turned my life upside 

down. I worked full-time before, but now my hours away from 

home have increased by nearly 40 percent. My pay is now $5,000 

less than it was prior to these long hours and additional days away 

from home. Higher medical costs have forced me to change my insurance to an HMO, which is fine while my daughter and I are 

healthy, but as I care for my mother, who has persistent health 

issues, I pray every day that I don’t have to face a life-changing 

illness that an HMO wouldn’t cover. 

Perhaps the most devastating change is the end of my retirement 

security. Executives terminated my 1010, and even with the new 

retirement plan, over 30 percent of my pension is gone and because 

my 401(k) is now my only retirement, I have no additional savings. 

I am still struggling to pay off my 401(k) loan and I have had 

to lower my 401 deferrals to 3 percent. That is the full amount that 

15

is required for the company’s matching contribution, but not nearly 

enough to build a secure retirement. I will never recover the lost 

value of my pension, a pension that I have worked a lifetime to 

build. 

So, am I angry that my CEO has preserved his $4.5 million trust 

while he has destroyed my future security? Am I angry that executives have taken 40 percent or more in raises every year while I 

worry that my memory is going because I work such long hours? 

Am I angry that last year alone our CEO used the bankruptcy laws 

to take pay bonuses and stock equaling over 1,000 times my compensation? Am I angry that his bonus is 125 percent of his annual 

salary while I don’t know what tomorrow will bring or if I will become a burden to my daughter? 

Yes. The answer is yes, I am angry. And I am tired. I was devastated when my union reported on a court hearing about our objection to enormous stock and bonus packages management awarded to themselves. In essence, the judge shrugged his shoulders and 

he said there was nothing he could do about it because the law did 

not give him a standard to determine how much is too much. 

I don’t begrudge executives fair compensation, but explain to me 

this, Madam Chairperson. How is it that their pay can skyrocket 

while average workers like me have to suffer? If your answer to 

this is because the law allows it, then it is time to change the law. 

[The prepared statement of Ms. Muoneke follows:]

PREPARED STATEMENT OF ANTOINETTE MUONEKE

Thank you, Chairwoman Sa ́nchez, and members of the Subcommittee, for holding 

this hearing on the growing disparity of compensation between workers and executives. I especially want to thank you for providing me with the opportunity to testify 

today. I am honored and humbled to represent my co-workers and all of the workers 

who are enduring life-changing sacrifice due to pay, healthcare, work rule and pension cuts forced during Chapter 11 Bankruptcy. We made painful concessions that 

affected our families, threatened our children’s opportunities, decreased our ability 

to afford healthcare and destroyed retirement security. While workers live paycheckto-paycheck and worry about what tomorrow will bring, a select few are lining their 

pockets with our sacrifices. We made these sacrifices for the long-term viability of 

the companies we worked so hard to help build and hope will continue to succeed. 

My name is Antoinette Muoneke, and I have been proud to work as a Flight Attendant for 28 years. After working my way through college, on a fluke I applied 

with United Airlines just to practice my interview skills shortly before graduating 

from the University of Washington. Just weeks later I was on a plane to Chicago 

to spend the summer training to be a Flight Attendant. After one year of flying a 

furlough gave way to work in advertising at Sears, which promised many opportunities for a good career. But when I was recalled to work at my airline, I chose instead 

to keep my career as a Flight Attendant. I enjoyed sharing work with colleagues 

who were well-educated and experienced professionals. And, I knew that recent 

Union negotiations had secured my retirement with a defined benefit pension plan. 

It was a thrill to meet different people every day, to contribute to a well-respected 

airline and to know that I would have the means to follow my dream of providing 

for a family along with my own future. Today, however, it sickens me that my chosen career makes me qualified to testify about the gross injustice taking place in 

the airline industry and across corporate America with the blessing of corporate 

bankruptcy laws. 

Although I am certainly qualified to speak about this issue, I could easily point 

you to any one of my colleagues; we are all facing these same uncertainties. It is 

not easy to publicly display my private challenges, but I know that putting a face 

on the devastating circumstances families are forced to confront across our country 

is more powerful than any horrific statistics. Although I regret the need to testify, 

I hope that my personal story will help Congress root out this injustice that affects 

so many lives. For me, it was not an easy decision, but when one of my colleagues 

said that she just wanted our CEO to explain to her daughter why she had to cancel 

16

her dance classes my heart knew her pain. If I can help shed light on this inequity 

with my story, then I have the courage to share my life with you today. That courage is strengthened when I think about helping to rebuild a world with opportunity 

for my beautiful daughter, Obia. 

In my first days as a Flight Attendant my new life seemed extravagant compared 

with my time as a ‘‘starving student.’’ Still, my college lifestyle taught me to be frugal and I began saving from the beginning of my career. My union contract gave 

me the tools to have a secure future, but I knew I had to do my part. Saving and 

planning took on even greater meaning when my daughter was born and within a 

year I was a single mother, newly divorced. Becoming a mother was a career changing event. I had to rethink my schedule and work hard to maximize my time at 

home. Thanks to help from my mother in Obia’s first years and generous assistance 

from a neighbor at a fraction of normal childcare costs, I was able to ensure my 

daughter had constant care and we lived a modest, but comfortable life. Our apartment near Seattle was rented, but I was steadily saving to buy a small condo in 

the same area and close to a good school. 

My time off was devoted to my daughter, and I stayed close to her as much as 

I could by volunteering or organizing charity events at her school. Giving back to 

my community is important to me and I wanted to share that with my daughter. 

We routinely volunteered to help the homeless by handing out sandwiches and blankets in downtown Seattle or serving in soup kitchens on the holidays. I have always 

been proud that I have been able to provide the tools for my daughter to excel based 

on her own developed talents. I made sure that she could attend a good school 

where she could be a good student, take part in athletics, music and drama. We 

were far from rich, but we had what we needed for a good life together and security 

for tomorrow. 

Life brings many challenges, and in June of 2001 I was in a car accident that 

kept me off the job for a year. I used vacation and sick leave to keep a paycheck 

coming, but healthcare expenses burned through my savings and caused me to borrow from my 401(k). At the time, borrowing from my 401k did not jeopardize my 

future when my primary source of retirement security was my pension plan. Before 

executives slashed my pay, benefits and pension, I could have bounced back from 

a personal setback like this. 

In that same year, the events of September 11th were devastating and dramatically changed the responsibilities of my job. Little did I know, executives were at 

the same time taking advantage of the industry downturn and the bankruptcy laws 

to drive executive wages up and worker wages down to levels I hadn’t seen since 

the early years of my career. I cannot escape the conclusion that those executives 

have exploited the economic downturn and the bankruptcy laws to enrich themselves at the expense of workers like me. 

The cuts forced on workers during the bankruptcy have turned my life upside 

down. I worked full time before, but now my hours away from home have increased 

by nearly 40%. The airplanes are staffed with fewer of my colleagues even though 

nearly every passenger seat is filled and our safety and security duties have increased. We are forced to work longer hours, but even if I could cut back my time 

at work, I couldn’t afford it. Working 40% more doesn’t even make up for my loss 

in pay. I make about $5000 less than I did prior to these long hours and additional 

days away from home. While I have to find time to provide care for my mother who 

experiences persistent health issues, I cannot afford the good healthcare plan that 

we once had because the concessions forced by executives also included higher medical costs. I have had to change our insurance to an HMO, which is fine while my 

daughter and I are healthy—but as I care for my mother, I pray everyday that I 

don’t have to face a life-changing illness that the HMO wouldn’t cover. 

I am desperate to insure that my daughter continues to have access to her good 

school, the Olympic development soccer program she’s qualified for and her piano 

lessons. I know that the only way she will be accepted to college these days is to 

stand out as extraordinary. And, the only way to have a chance for a better life, 

the life we used to lead, is to get an education. Even so, the cost of college weighs 

heavy on my mind and we both hope for an athletic scholarship. But that means 

keeping up with her activities and paying for them. I have to juggle bills every 

month, worry about our rent and I am not always able to be at home to get her 

to practice or games. We have to depend upon other families to pick her up, and 

it kills me not to be able to reciprocate. I have had to stop my charity work due 

to time constraints, but this too causes an additional financial burden since her 

school increases tuition costs when charitable quotas are not met. 

Perhaps the most devastating change is the end of my retirement security. With 

my pension plan terminated less than two years before I could qualify for retirement, my accrued defined benefit is subject to heavy penalties when paid by the 

17

Pension Benefit Guarantee Corporation. Even with the new retirement plan, over 

30% of my pension benefit is gone. And because my 401k is now my only retirement, 

I don’t have any additional savings. I am still struggling to pay off my 401k loan, 

and I’ve had to lower my 401k deferrals to just 3%. That’s the full amount required 

for the company matching contribution, but not nearly enough to build a secure retirement. I will never be able to recover the lost value of my pension—a pension 

I worked a lifetime to build. A pension promised instead of increases to pay and 

other Contractual benefits. A pension that helped me choose this as my career. 

So, am I angry my CEO was able to preserve his $4.5 million pension trust while 

he destroyed my future security? Am I angry that executives have taken 40% or 

more in raises every year while I worry that my memory is going because I work 

such long hours? Am I angry that last year alone our CEO used the bankruptcy 

laws to take pay, bonuses and stock equaling over 1000 times my compensation? Am 

I angry that his bonus is 125% of his annual salary while I don’t know what tomorrow will bring or if I will be a burden to my daughter? Yes, I’m angry, and I’m tired. 

I was devastated when my union reported what happened in court when we objected to the enormous stock and bonus packages management awarded to themselves. In essence, the judge acknowledged our concern, but shrugged his shoulders 

and said there was nothing he could do about it because the law did not give him 

the authority to second guess management compensation, or a standard by which 

to determine ‘‘how much is too much.’’

Airline executives were well paid before the bankruptcy and I don’t begrudge 

them fair compensation. But explain to me this, Madame Chairperson, how is it 

that their pay can skyrocket while the average worker is made to suffer like this? 

If your answer is that it’s because the law allows it, then it’s time to change the 

law. 

I want to thank you again for giving me the opportunity to testify today. I will 

answer any questions that you may have.

Ms. SA ́ NCHEZ. Thank you, Ms. Muoneke. 

Ms. MUONEKE. I want to thank you for giving me this opportunity. 

Ms. SA ́ NCHEZ. Thank you for your testimony. I know it has been 

a very difficult road for you to get here and to give your testimony, 

and we appreciate hearing from your perspective. 

Mr. Wintner, please begin your testimony. 

TESTIMONY OF MARK S. WINTNER, ESQUIRE,

STROOCK & STROOCK & LAVAN LLP, NEW YORK, NY 

Mr. WINTNER. Thank you, Madam Chairman and Members of 

this Subcommittee. 

The issues regarding executive compensation are not limited to 

Chapter 11, as many of the Members and panelists have mentioned 

before. That exists both inside and outside of Chapter 11. However, 

to focus in on Chapter 11 compensation without looking at compensation as a whole, leaves Chapter 11 companies in distinct competitive disadvantage in terms of retaining or attracting key executives and key employees during the Chapter 11. 

I am not here to defend or criticize the 503(c) restrictions that 

were put on retention payments and severance payments. As alluded to earlier, I do note that the new rules, particularly on retention payments, are so restrictive as to virtually have made them 

disappear and, as a result, somewhat predictably, as also noted, 

the focus has shifted on pay-to-stay plans, which are really no 

longer tolerable for insiders under the Chapter 11 rules to pay for 

performance or pay for value. 

I submit that the continued validity and health of those programs are essential to many Chapter 11 reorganizations. 

Incentive pay in Chapter 11 enables debtors to compete in the 

marketplace. That marketplace already, outside of Chapter 11, inVerDate 0ct 09 2002 09:34 Jun 26, 2007 Jkt 000000 PO 00000 Frm 00021 Fmt 6633 Sfmt 6601 F:\WORK\COMM\041707\34755.000 HJUD1 PsN: 34755
18

cludes a typical package of salary, bonus, long-term incentive 

plans, equity, severance, change of control and other arrangements. 

Right now, a Chapter 11 company cannot offer all of those things. 

To further cut back on the ability of a Chapter 11 company to 

compensate and incentivize its executives will only lead to exodus 

of executives. I am not going to pretend that every executive is 

going to leave in that circumstance. Some will and some won’t. But 

it becomes increasingly difficult to replace executives. 

If you have good executives and they stay and they are undercompensated, you are lucky. If you have good executives and they 

don’t stay because they are under-compensated—and under-compensated, I am not addressing the broader issue of what executive 

compensation should be to rank and file compensation in the universe of the marketplace, just why Chapter 11 companies cannot 

be put at a negative disadvantage to the rest of the marketplace. 

If you want to replace management because they are not doing 

a good job and are trying to attract somebody and you cannot fairly 

compensate them, you are effectively asking them to leave a marketplace where they are not restricted to enter a marketplace 

where they are restricted in the context of a company which may 

or may not have a long-term future. That is very hard to do, virtually impossible. 

Now, the courts have developed since the advent of the 2005 restrictions the emphasis on incentive pay instead of retention pay. 

Although we are still in the infancy of it, we are about 18 months 

in, it is working tolerably well. Executives are receiving lower 

packages than they did pre the 2005 reform amendments and some 

of the—in fact I think almost all the cases alluded to today predated the advent of those 2005 amendments. 

The courts that have addressed it have addressed it under a 

business judgment rule, which is not an automatic stamp. There 

are several factors that need to be passed before the bankruptcy 

court will approve it. 

I think it is not coincidental that in addition to the changes made 

between Dana 1, where the bankruptcy court in New York rejected 

the package as being too much like a retention plan and not 

enough like an incentive plan, and the approval 4 months later of 

the revised program, which was revised in many respects but 

equally significant, the Official Creditor Committee, the Ad Hoc 

Bond Holders Committee and other significant parties to Dana all 

opposed management in the consideration of the Dana 1 proposal 

and the court ruled against it. 

The creditor bodies, at least, although not the labor organizations, supported the revised program for Dana 2 and it was approved. It was approved, therefore, with at least the input and the 

active participation and negotiation by other parties to the bankruptcy. 

Nobody feels good about lost jobs, but nobody has demonstrated 

that capping compensation for executives is going to preserve those 

jobs. To the extent it simply leads more companies into liquidation 

or more likely into asset sales so as to get themselves out of both 

the restrictions of Chapter 11 as well as the relentless marketplace 

pressure on those troubled companies, that is not going to be good 

for anybody. 

19

Thank you, Madam Chair. 

[The prepared statement of Mr. Wintner follows:]

PREPARED STATEMENT OF MARK S. WINTNER

By way of background, I am a partner in the law firm of Stroock & Stroock & 

Lavan LLP and head of the Firm’s ERISA and Employee Benefits Group. I have 

specialized for over three decades on a broad range of employee benefit and compensation issues, and have worked extensively on the employee benefit and compensation aspects of bankruptcy and reorganization proceedings. Specifically, I have 

been involved in advising debtors, official creditor committees, ad hoc bondholders 

committees and individual and groups of creditors, investors and purchasers on benefits and/or compensation matters in numerous Chapter 11 reorganization proceedings, including Delta Airlines, Brooklyn Hospital, Dana Corp., Loral Space & 

Communications, Anchor Glass, Columbia Gas, Piper Aircraft, LTV Steel, Pan Am, 

Federated Department Stores, Wheeling-Pittsburgh, Coleco, Flushing Hospital, 

Raytech and W.R.Grace. 

I also lecture frequently on employee benefit and compensation matters in bankruptcy and have been a speaker for the American Bar Association (ABA), Practicing 

Law Institute (PLI), ALI-ABA and the Society of Actuaries, among others. I am a 

member of the American College of Employee Benefits Counsel and the ABA Joint 

Council of Employee Benefits. 

The views stated herein are solely those of the author, and do not necessarily reflect the views of my Firm or any of its partners or of any Firm clients, past or 

present. 

The very title of the hearing, ‘‘Executive Compensation in Chapter 11 Bankruptcy 

Cases: How Much is Too Much,’’ suggests that there may be an objective standard 

which would enable bankruptcy courts and interested parties in Chapter 11 cases 

to discern when executive compensation crosses the line from ‘‘enough’’ to ‘‘too 

much.’’ In my opinion, there is no feasible way of making such a judgment and, 

moreover, if there were it would vary from company to company, would not apply 

uniformly to different executives within the same company and would certainly 

change over time. 

As the Subcommittee is aware, the subject of executive compensation in Chapter 

11 cases was addressed by Congress just two years ago, as part of the Bankruptcy 

Abuse Prevention and Consumer Protection Act (the ‘‘Bankruptcy Reform Act’’). The 

Bankruptcy Reform Act added Section 503(c) to the Bankruptcy Code, effective for 

Chapter 11 cases filed on or after October 17, 2005. Section 503(c) acts as a limitation on the authority conferred under Section 503(b) to allow administrative expenses of the Chapter 11 debtor’s estate. Section 503(c) directs that even if a claim 

for compensation would otherwise satisfy the 503(b) requirements for administrative 

expenses, the claim will not be allowed (by the Bankruptcy Court) nor paid (by the 

debtor) if it falls into any of the three paragraphs of subsection (c), summarized 

below: 

(1) covers retention compensation to be paid to an insider of the debtor, such as 

the debtor’s directors, officers or other persons in control of the debtor, unless the 

bankruptcy court makes a finding based on the record that such payment is (i) essential to retaining the insider because the person has a bona fide job offer from 

another business at the same or greater rate of compensation and (ii) the services 

provided by the person are essential to the survival of the business. In addition, the 

court may only approve retention compensation programs that are capped at no 

greater than ten times the amount of similar payments provided to non-management employees, or if no such similar payments were made, no more than 25% of 

the amount of any similar payments made to such insider for any purpose during 

the year prior to the year in which such payment is to be made; 

(2) covers severance to be paid to an insider of the debtor, unless (i) the payment 

is part of a program that is generally applicable to all full time employees and (ii) 

the amount of the payment does not exceed ten times the amount of the mean severance pay given to non-management employees during the calendar year in which 

the severance payment to the insider is made; 

(3) covers post-petition transfers or obligations incurred for the benefit of officers, 

managers or consultants, if such transfers or obligations are outside the ordinary 

course of business and not justified by the facts and circumstances. This provision 

would apply to incentive compensation and bonus plans. 

The focus of this statement is on the type of compensation programs commonly 

referred to as key employee retention plans, or KERPs, and in particular, performance based KERPs. Prior to the enactment of the Bankruptcy Reform Act, KERPs 

had been used to provide certain high-level employees of a debtor with compensation 

20

to induce them to stay with a debtor throughout a reorganization, in addition to the 

employee’s base salary. These programs covered a wide range of benefits from severance pay to retention arrangements to success bonuses. They may have been structured to pay out if an employee remained employed through a particular date or 

event (sometimes referred to as a ‘‘stay bonus’’), upon the occurrence of reaching certain business targets, or if the company terminated the employee. Historically, a 

debtor would use a KERP for employees that it considered integral to the operation 

(and if applicable, the reorganization or wind-down) of the company, and that it felt 

were necessary to retain during the uncertain times of the reorganization, much like 

a company outside of reorganization would use an incentive program to retain employees during uncertain times such as a downsizing or merger. Before the Bankruptcy Reform Act, bankruptcy courts applied the business judgment rule to the proposed KERP (i.e., the court would typically approve a KERP if it was persuaded 

that the debtor used sound business judgment, there was a legitimate business justification and the compensation program was fair and reasonable). 

As discussed above, Section 503(c) of the Bankruptcy Code severely limits the 

amount of retention compensation and severance which can be paid to the debtor’s 

insiders. In effect, the limitations on retention (or stay) payments and on severance 

as set forth in Section 503(c)(1) and (2), respectively, have already answered the 

question as to how much is too much for those types of payments. However, KERPs 

which are performance driven can still be reconciled with the new law. 

Since Section 503(c) became effective less than two years ago, the decisions (published and unpublished) analyzing and applying the Section 503(c) restrictions are 

limited, however, even with this limited case law, it is beginning to come clear how 

courts have viewed the changes to the Bankruptcy Code. The case law has focused 

on whether the proposed plan is a ‘‘pay to stay’’ compensation plan, primarily used 

to retain employees and thereby subject to the limits of Section 503(c), or a ‘‘pay 

for value’’ compensation plan, primarily used as an incentive for employees to reach 

certain goals and a reward upon attainment of those goals and, therefore, subject 

to the standards of the business judgment rule. 

One of the first cases to discuss Section 503(c) was In re Nobex Corp., No. 05–

20050, 2006 Bankr. LEXIS 417 (Bankr. D. Del. Jan. 19, 2006). In that case, the 

debtor sought to pay its chairman (acting as its chief executive officer) and its vice 

president of finance and administration incentive bonuses in addition to their regular compensation. The incentive bonuses were to be paid only in the event of a sale 

of the debtor and only if the sale price exceeded a certain threshold. The debtor argued that the chairman and vice president were necessary for a successful sale of 

the company and that they were committed to their employment even if no incentive 

compensation was paid. The court found that the plan was not an inducement for 

the chairman and vice president to stay with the debtor, but rather an inducement 

to increase the price received by the debtor in a sale, which would ultimately result 

in a greater recovery for creditors. The plan was approved by the court using the 

business judgment standard, not the Section 503(c) standard. 

In the case of In re Calpine Corp., No. 05–60200, the court approved a compensation program that included four different types of incentive payments. The program 

provided for payment of (i) bonuses upon the debtor’s emergence from Chapter 11, 

(ii) bonuses based on the debtor’s achievement of certain performance goals established by the debtor in consultation with various creditor constituencies, (iii) a supplemental bonus to non-insiders who performed a critical function at the debtor and 

were at significant risk of being hired by another company and (iv) a discretionary 

bonus to non-insiders. The court approved the latter two components of the compensation program outside of Section 503(c) because the payments were to non-insiders. The court also held that the emergence bonus and performance bonus were 

outside of Section 503(c) because they were incentive plans not retention plans. 

In In re Dana Corp., 351 B.R. 96 (Bankr. S.D.N.Y. 2006), the court rejected the 

debtor’s proposed compensation program for senior officers. Notably, this was the 

same court that approved the Calpine program months earlier. The Dana compensation program, as initially presented, included a completion bonus that paid out on 

the debtor’s emergence from bankruptcy, without regard to the actual performance 

of the company. The court held that since nothing was required of the employees 

other than remaining with the company through emergence, and it did not meet the 

requirements of Section 503(c), it was an invalid retention program. As Judge 

Lifland stated in the Dana opinion, ‘‘If it walks like a duck (KERP) and quacks like 

a duck (KERP), it’s a duck (KERP).’’ Dana subsequently revised its program to include performance criteria and sought approval of the revised plan. With these significant changes, the court approved the program. 

In the recent decision of In re Global Home Products, LLC, 2007 Bankr. LEXIS 

758 (Bankr. D. Del. March 6, 2007), the debtor sought approval of a management 

21

incentive plan which would award certain eligible employees a bonus equal to a percentage of base salary on a quarterly basis if minimum EBITDAR (Earnings Before 

Interest, Taxes, Depreciation and Rent) and/or cash flow objectives were achieved. 

The management plan was very similar to prior year incentive plans. The court analyzed and approved the plan outside of Section 503(c), holding that the plan was 

intended to incentivize management, not retain them. As part of its analysis, the 

court considered that in the prior year, under a similar plan, no bonuses were paid 

since the targets were not met. 

Retaining or attracting key employees, directors or consultants is important for 

any company, whether in or out of Chapter 11, but Chapter 11 debtors have additional problems in this regard, most notably the inescapable fact that the future of 

the company is more uncertain than usual and that they cannot offer equity compensation during the reorganization proceeding. The Bankruptcy Reform Act has 

significantly curtailed the use of retention (or stay) bonuses and severance as meaningful incentives. Therefore, in addition to market competitive salaries and annual 

bonuses, performance based KERPS are the most significant means for a debtor to 

compensate insiders and remain competitive with other prospective employers. The 

ability to do so is not only important to debtors and insiders themselves, but to the 

creditors and other interested parties whose recoveries depend upon maximizing the 

value of the debtors. 

The early experience with Section 503(c) is that the bankruptcy courts, after taking into account the view of the various creditor constituencies and other interested 

parties, are developing a workable set of rules which will enable insiders to be compensated on a competitive basis, but only if their performance has been beneficial 

to the estate. There is no need to impose limits on that process, particularly so soon 

after the Bankruptcy Reform Act. Any attempt to impose a one-size fits all absolute 

dollar or percentage limit on ‘‘pay for value’’ KERPs will frustrate the ability of the 

interested parties to design incentive compensation suitable for the particular needs 

of the debtor and be detrimental to the Chapter 11 process.

Ms. SA ́ NCHEZ. Thank you, Mr. Wintner. 

Mr. Levin, will you please begin your testimony? 

TESTIMONY OF RICHARD LEVIN, ESQUIRE,

NATIONAL BANKRUPTCY CONFERENCE, NEW YORK, NY 

Mr. LEVIN. Thank you, Madam Chair, and thank you also, and 

the Members of the Subcommittee, for inviting the National Bankruptcy Conference to be heard on this very important issue in 

Chapter 11. 

As I note in my prepared testimony, I am here on behalf of the 

Conference, not on behalf of my law firm or any clients, and I am 

speaking only on behalf of the Conference. 

This is a difficult and painful topic, as Ms. Muoneke’s testimony 

so eloquently stated. Bankruptcy results in loss to many, and yet 

it is important that bankruptcy policy do whatever it can to enhance the value of what is there, whether through reorganization 

or through a liquidation proceeding, and it is important that people 

be there to carry out their duties to enhance the value of the company, so that what is left will be greater than if everybody just 

walks away. 

There is most definitely a fairness element in determining executive compensation in bankruptcy that has to be balanced against 

the need to secure the services of executives and middle-level and 

senior managers to run a company while it is in bankruptcy or to 

run the liquidation. But the fairness element cannot be served by 

going too far in either direction, by permitting everything or by 

prohibiting everything. 

Section 503(c), enacted 2 years ago, in fact almost exactly 2 years 

to the day ago, made an attempt at restoring some balance to an 

22

executive compensation system in bankruptcy that had been subject to very great abuses. Nobody can question that. 

It has its problems in the way it was drafted and implemented. 

It is a very difficult and unworkable provision. But it has served 

an important purpose in sensitizing the Bar and more importantly 

the Bench to the issues surrounding executive compensation and to 

providing some appropriate restrictions, although in our view we 

think perhaps the restrictions are more than are necessary to create this balance. 

From our perspective, we look at bankruptcy policy and what is 

important in bankruptcy policy. We think bankruptcy policy is designed to preserve value and to promote fairness among constituencies that must make sacrifices, and with that we have four principles that we would state to govern any executive compensation 

legislation. 

First, each case is unique. You cannot have a one-size-fits-all solution for all of the varied kinds of companies in reorganization. 

Second, consistent with the overall purpose of the bankruptcy laws, 

negotiation is the way to resolve these issues. And there should be 

adequate time given to the parties to negotiate resolutions. Neither 

side should be able to impose its will. 

And, finally, we think basic fairness can be best promoted by focusing on the compensation of what we will call ‘‘senior management,’’ or senior executives rather than mid-level management, 

who usually—and the difference here is that senior executives tend 

to have the opportunity to have much more influence and almost 

set their own compensation, whereas below the top level, that is 

less true. 

And based on those principles, we would make two general recommendations. The first is that there should be procedural rather 

than substantive limitations imposed in the area of executive compensation. Substantive limitations that are too rigid will defeat the 

purpose, because they will violate the one-size-fits-all policy. Every 

case is unique. But procedural limitations will give parties time to 

get to the bargaining table and negotiate appropriate compensation 

arrangements to keep the people needed to preserve value and yet 

not let it go too far and give everybody time to be heard before the 

court. 

And second, we would propose that 503(c) or any future amendment of it be limited to the senior executives as the SEC defines 

that term for proxy reporting purposes. They are really the five 

most highly compensated executives who have an executive role. It 

doesn’t encompass the star performer who is not an executive who 

needs to be paid to perform and achieve value. 

We think that would loosen the restrictions on people like Mr. 

Allen in Enron, that Mr. Silvers has discussed, and still focus on 

the top. All of the discussion this morning has been on the one or 

two people at the top, and that is where we think the SEC has got 

it right, and we would suggest that that be carried over into the 

bankruptcy area as well. 

Thank you, Madam Chairman. I am ready to answer any questions. 

[The prepared statement of Mr. Levin follows:]

23

1Partner, Corporate Restructuring Department, Skadden, Arps, Slate, Meagher & Flom LLP, 

New York, NY. The views expressed in this testimony are expressed solely on behalf of the National Bankruptcy Conference and do not necessarily represent the views of Mr. Levin, Skadden, 

Arps, or any of its clients. 2Pub. L. 109–8, § 331, 119 Stat. 23, 102, (2005).

3 ‘‘The term ‘insider’ includes—

. . . 

(B) if the debtor is a corporation—

(i) director of the debtor; 

(ii) officer of the debtor; 

(iii) person in control of the debtor; 

(iv) partnership in which the debtor is a general partner; 

(v) general partner of the debtor; or 

(vi) relative of a general partner, director, officer, or person in control of the debtor;’’. 

11 U.S.C. § 101(31).

PREPARED STATEMENT OF RICHARD LEVIN 1

The National Bankruptcy Conference appreciates the opportunity to participate in 

these oversight hearings on executive compensation in chapter 11 cases and thanks 

the Subcommittee for its invitation. The topic is important to the administration of 

chapter 11 cases and preservation of jobs and value for all constituencies and equally important to maintaining fairness in reorganization. We commend the Subcommittee for focusing on this issue in its review of the 2005 bankruptcy amendments. 

The Conference is a voluntary, non-profit, non-partisan, self-supporting organization of approximately sixty lawyers, law professors and bankruptcy judges who are 

leading scholars and practitioners in the field of bankruptcy law. Its primary purpose is to advise Congress on the operation of bankruptcy and related laws and any 

proposed changes to those laws. Attached to this statement is a Fact Sheet about 

the Conference, including a list of its Conferees. Also attached is a Background Report on Executive Compensation Issues that was prepared by the Conference’s Employee Benefits and Compensation Committee (the ‘‘Background Report’’). 

Executive compensation has occupied headlines recently, and not just in bankruptcy cases. See Background Report, at [28–32]; ‘‘Transparency: Lost in the Fog,’’ 

New York Times, Apr. 8, 2007, at BU1. In chapter 11 cases, the principal focus has 

been on retention, severance and incentive plans, especially since the 2005 addition 

to the Bankruptcy Code of section 503(c). This section, which was added by section 

331 of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005,2 imposes restrictions on the ability of a chapter 11 trustee or debtor in possession to 

implement retention, severance, or incentive compensation plans for its ‘‘insiders.’’ 3

To start, a definition of terms might be helpful to an understanding of the issues 

that section 503(c) presents. In common parlance, retention plans usually involve 

payments to employees who stay with the company for defined periods of time, even 

if their employment is not terminated. Retention plans are designed to give employees an incentive not to seek employment at another firm even though they may not 

be threatened with imminent loss of their jobs. Another job at a healthy company, 

even at reduced compensation, might seem more attractive than remaining with a 

chapter 11 debtor in possession, where employees face the stress and difficulty of 

operating a company in chapter 11 and the ultimate risk of being fired due to a reduction in the company’s labor force or even liquidation of the enterprise. 

A severance plan involves payments to employees upon the company’s termination 

of their employment to cushion the impact of losing their job and to provide them 

time to seek alternative employment. In the bankruptcy environment, where, for 

many employees, the prospect of termination is on the immediate horizon, severance 

plans also serve the goal of retention by discouraging employees from seeking to 

leave the company in advance of being laid off. A severance plan is particularly appropriate where employees know they will be ‘‘working themselves out of their jobs,’’ 

for example, by overseeing a liquidation or sale of the company. The better the employees perform in the liquidation or sale process, the faster they lose their jobs. 

All constituencies benefit from a swifter conclusion to the process. Retention and 

severance plans thus serve a common purpose in chapter 11 cases—keeping employees from seeking other employment for as long as the debtor company needs them. 

An incentive plan, by contrast, is designed to motivate employees to achieve financial or other performance targets. The targets might be ordinary operating performance targets or targets relating to the reorganization or liquidation of the company. 

Although the incentive compensation will not be paid if the employee leaves the 

company before the relevant performance target has been met (which discourages 

24

the employees from leaving), an incentive plan’s primary purpose is enhanced performance, not retention. 

Incentive and severance plans are common among companies not in financial distress and often are required for a company to provide competitive compensation for 

middle and senior managers. See In re Pliant Corp., Case No. 06–10001 (MFW) 

(Bankr. D. Del. Mar. 14, 2006) (prepetition incentive plan). Retention plans, though 

less common in the non-distress context, are also sometimes seen. 

Properly designed, all three kinds of plans can enhance the viability and value 

of a business, and can serve a proper purpose in business in general and in reorganization cases in particular. See In re AirWay Indus., Inc., 2006 WL 3056764 

(Bankr. W.D. Pa. Oct. 3, 2006) (secured creditor underwrote incentive plan out of 

its own collateral proceeds to motivate employees to produce better recoveries). In 

chapter 11 cases, properly designed plans can be in everyone’s interest because they 

preserve the business and jobs, and, ultimately, enhance creditor recoveries. 

The difficulty, however, lies in ensuring that such plans are used in an appropriate way and are not excessive in light of their legitimate purposes. There is an 

obvious risk that such plans will be designed by managers to enhance their own 

compensation and will be more generous than strictly necessary to preserve the 

value of the business. While this risk exists at a non-bankrupt company, in a bankruptcy company, where other employees are being terminated or being asked to 

make sacrifices and creditors are incurring significant losses, there is a heightened 

concern over both unfairness and corporate waste. 

In view of this potential for abuse, the National Bankruptcy Conference believes 

that bankruptcy procedures should be designed so that retention, severance, and incentive plans in chapter 11 cases are tailored to their legitimate objectives—preserving the debtor’s business and enhancing its value—but are not excessive. In designing such procedures, however, care must be taken not to sweep so broadly that 

appropriately tailored retention, severance and incentive plans are impossible to implement. If the standards for authorization of such plans are too rigid or impractical, the goals of reorganization, preservation of jobs and enhancement of value 

may be thwarted, or, perhaps worse, parties will have an incentive find creative 

ways of circumventing the rules to meet the economic needs of the business. The 

Conference believes an appropriate balance must be struck. 

Section 503(c) ostensibly was designed to address the unfairness and waste issues 

by limiting overly generous ‘‘pay to stay’’ packages for the executives who themselves are setting the payments. However, in its current form the provision can be 

criticized on a number of grounds. 

To start, the section imposes impractical requirements. It permits retention plans 

only on an employee-by-employee basis, because it requires a showing as to the 

unique circumstances of each employee that would be covered. It applies only when 

an employee already has ‘‘a bona fide job offer at the same or greater rate of compensation’’ and when the services of such employee are ‘‘essential to the survival of 

the business’’—requirements that are unlikely ever to be met. If an employee sought 

out and received such a ‘‘bona fide job offer at the same or greater compensation,’’ 

it is unlikely the employee would choose to await the outcome of a hearing on a retention plan before deciding to accept the other offer. The ‘‘bona fide job offer’’ requirement defeats the principal purpose of a retention program, which is to keep 

employees from seeking other employment in the first place. The ‘‘essential to survival’’ requirement is difficult to meet in a moderate sized to large company, because 

the loss of any given employee will seldom be a genuine threat to the company’s 

ultimate survival. The loss of a key employee may hurt the company, and the loss 

of a large group of such persons may threaten the company’s survival, but it will 

be almost impossible to show that retaining a single individual is ‘‘essential to survival of the business.’’

Even if these facts could be shown, the section takes a formulaic approach to what 

payments may be made. This ‘‘one size fits all’’ approach limits the ability of the 

debtor in possession to design a retention program that is responsive to the needs 

of its operations, employees and competitive environment so that the objectives of 

the program to retain key employees can be achieved. 

The section is also overbroad compared to the principal problem it was intended 

to address—senior executives lining their own pockets while other employees suffer. 

It can be read essentially to restrict even legitimate and necessary retention and 

severance programs for mid-level managers who have no control or influence over 

their own compensation but who can often provide substantial value to a company 

in distress if they stay and do their jobs. 

Finally, ambiguities in the provision generate distracting and destabilizing litigation at the delicate early stages of a chapter 11 case over the distinction between 

prohibited ‘‘retention’’ plans and permitted ‘‘incentive plans,’’ as well as over who 

25

4 H. Rep. No. 595, 95th Cong. 1st Sess. 220 (1977); see NLRB v. Bildisco & Bildisco, 465 U.S. 

513, 527, 104 S. Ct. 1188, 79 L. Ed. 2d 482 (1984) (‘‘the policy of Chapter 11 is to permit successful rehabilitation of debtors’’); United States v. Whiting Pools, Inc., 462 U.S. 198, 203, 103 S. 

Ct. 2309, 76 L. Ed. 2d 515 (1983) (‘‘Congress presumed that the assets of the debtor would be 

more valuable if used in a rehabilitated business than if sold for scrap.’’). 5See Richard Broude, Cramdown and Chapter 11 of the Bankruptcy Code: The Settlement Imperative, 39 Bus. L. 441 (1984). 

is an ‘‘insider’’ covered by the section, and who is not. Such litigation highlights to 

employees the uncertainty of their status just when the company has an urgent 

need to calm its workforce due to the initial shock of the bankruptcy filing. 

These and other effects of section 503(c) are described in greater detail in the 

Background Report submitted with this testimony and in the ‘‘Memorandum on the 

Impact of Section 503(c) of the Bankruptcy Code and the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 on Executive Compensation,’’ adopted by 

the Executive Compensation Committee of the American College of Bankruptcy, 

which we understand has been submitted to the Subcommittee for inclusion in the 

record of this hearing. 

Despite its flaws, however, there is no question that section 503(c) has served the 

salutary purpose of sensitizing courts, creditors, and U.S. trustees to the issues of 

inappropriate executive compensation packages and has properly shifted the compass toward a far more reasonable approach to the issue. The National Bankruptcy 

Conference would suggest, however, that in the interest of all participants in the 

reorganization process, especially the debtor in possession’s non-management employees, a more nuanced and balanced approach to executive retention issues is 

needed—an approach that preserves the new law’s salutary effects, but also takes 

into account other important chapter 11 policies, like preserving and maximizing 

the value of a reorganizing debtor’s business. 

Our reorganization laws are premised on the idea that the value of an enterprise 

as reorganized often will exceed its liquidation value. Reorganizing permits the company to improve its operations, enhance its value, preserve jobs, and reduce sacrifices that need to be made by all constituencies. As this Committee recognized in 

proposing chapter 11 30 years ago: 

The purpose of a business reorganization case, unlike a liquidation case, is to restructure a business’s finances so that it may continue to operate, provide its employees with jobs, pay its creditors, and produce a return for its stockholders. The 

premise of a business reorganization is that assets that are used for production in 

the industry for which they were designed are more valuable than those same assets 

sold for scrap.4

The objective of maximizing the value of the enterprise is distinct from the question of how that value, once maximized, should be allocated among creditors, shareholders, employees, and other stakeholders. It is proper to ask whether the value 

of the enterprise is being equitably distributed, but it is self-defeating if the method 

of effecting an equitable distribution among the parties reduces the value that is 

available to distribute. Generally speaking, therefore, issues of equitable distribution should be resolved only after appropriate steps have been taken to preserve and 

maximize the value of the business. The Bankruptcy Code was designed to facilitate 

such maximization (for example by permitting sale of unproductive assets, assumption of beneficial contracts and rejection of burdensome ones) and to encourage negotiations over the equitable distribution issue, with ultimate recourse to the court if 

the distribution issue cannot be consensually resolved.5

Labor issues in general, and executive retention and severance plans in particular, pose difficulties in the chapter 11 context because they typically intermingle 

and often create a conflict between the equitable allocation of sacrifice among employees and other constituencies on the one hand and the objective of maximizing 

reorganization value on the other. The Conference believes, however, that these apparently conflicting objectives can in fact be reconciled in the case of executive retention, severance, and incentive plans if a somewhat different approach from the 

one taken in section 503(c) is adopted. In the view of the Conference, this approach 

should take into account several basic principles:

• First, the approach adopted should recognize that each case presents a unique 

combination of demands on management, employees, and creditors, and that 

a one-size-fits-all formula to address executive retention and severance is too 

constraining to accomplish the bankruptcy objectives of maximizing value of 

the debtor’s business and preserving jobs.

• Second, the approach adopted should also recognize that, for the vast majority 

of employees—those who do not control decisions relating to their own compensation—appropriate retention, severance, and incentive plans are matters 

26

that should be resolved by negotiation between the debtor in possession and 

the stakeholders in the case.

• Third, the approach adopted should assure relevant parties adequate time to 

familiarize themselves with the underlying facts and needs of the business 

and to negotiate and resolve the issues or put them before the bankruptcy 

court.

• Finally, the approach adopted should address the basic fairness issue: preventing a limited number of senior management decision makers to reward 

themselves by designing for themselves excessively generous retention and 

severance arrangements while other employees and creditors are being called 

upon to accept sacrifices.

The NBC suggests two principal changes from current law that would help implement these principles:

• First, procedural limitations should be imposed to prevent adoption of compensation plans for senior officers of the company at such an early stage in 

the case that the constituencies (including those representing hourly employees) are not yet ready to participate in the negotiation of reasonable and balanced solutions. Any proposed program for senior officers should be debated 

by the parties and considered by the bankruptcy court in broad daylight and 

only after all key constituencies have had the opportunity to scrutinize the 

program and express their views. A reasonable minimum notice period should 

be imposed to allow a creditors’ committee to be formed and to provide the 

committee and other parties a fair opportunity for review of the proposed program, and, if agreement is not reached, for there to be a fair opportunity for 

the parties to be heard before the court.

• Second, limitations on retention, severance, and incentive plans like the ones 

in section 503(c) should be specifically targeted against those senior executives who are in a position to make self-serving compensation decisions, and 

a more traditional business judgment test, which focuses on preservation of 

the value of the business, should be applied to authorization of such plans 

with respect to other employees.

The reasons for this more targeted approach are straightforward. A large company may have dozens of officers, such as vice presidents, a treasurer, a controller, 

and assistant vice presidents and treasurers, elected to officer positions by the 

board, who might be considered ‘‘insiders’’ covered by the current limitations in section 503(c). The real risk, however, of over-reaching, over-compensation and abuse 

lies not with this larger group of employees, but rather with the senior executives 

who play a role in setting compensation, usually the chief executive officer and a 

few other top executives. 

The SEC has addressed this risk in the non-distress context by requiring disclosure of compensation of the top five most highly compensated executive officers. See 

Item 402(a), SEC Regulation S-K. This group generally would not include, for example, the star sales manager, the key engineer, the plant manager or the like, who 

may technically be an ‘‘officer’’ or ‘‘insider’’ of the company but who has no role in 

setting compensation. Adoption of the SEC dividing line to determine whose compensation is subject to heightened scrutiny in a chapter 11 case would help to assure fairness and avoid abuse, while at the same time not placing at excessive risk 

the important bankruptcy objectives of preserving the business, enhancing its value 

and ultimately increasing the likelihood of a successful reorganization that will minimize the hardships to be borne by all parties. 

Limiting the restrictions of section 503(c) to the senior executives in control of 

compensation decisions will permit debtors in possession, where necessary and appropriate, to offer the incentives necessary to keep key middle managers and star 

performers focused on their jobs, without generating expensive, time-consuming, 

and distracting litigation. The process would likely be self-regulating and self-limiting, because CEO’s and other senior executives are unlikely to propose excessive 

compensation for mid-level officers or junior employees if they are prohibited from 

providing excessive compensation for themselves. Regulating the top of the compensation pyramid is the best way to assure that other employees are offered only 

what is genuinely necessary to retain their services in the interest of the business. 

Once again, I would like to thank the Chair and the rest of the Subcommittee 

for inviting the National Bankruptcy Conference to testify in these important hearings. The Conference would be pleased to consider this issue further if the Subcommittee desires, and we would be prepared to formulate detailed drafting proposals if the Subcommittee would find that helpful.

27

ATTACHMENT


Levin1.eps
28


Levin2.eps
29

Ms. SA ́ NCHEZ. I should also mention before we move on to a 

round of questions that Glenn Tilton, the chairman, president and 

chief executive officer of United Airlines, was invited to testify at 

this hearing today but declined to do so and I think that is really 

a shame because if he were able to be here he perhaps would have 

had testimony that could have been enlightening as to the equitable considerations that are warranting this hearing on executive 

compensation. 

It has been suggested that I subpoena him. We try to do all 

things with restraint and voluntarily. 

We are now going to proceed with a round of questions subject 

to the 5-minute rule. I just want to warn the witnesses that we 

each will have limited time, as you did, in which to ask questions, 

so if you could be brief and concise with your answers, that would 

be helpful. It would allow Members time to ask the questions that 

they want to ask of the various panel members. 

I will begin the round of questioning starting with Mr. Silvers. 

The Office of the United States Trustee is required to supervise 

the administration of Chapter 11 cases and object to compensation 

requests pursuant to section 330 of the Bankruptcy Code where appropriate. In your opinion, do you think that the United States 

Trustee could play a more active role in policing excessive compensation requests? 

Mr. SILVERS. I will give you a very brief answer. Yes. 

I think that this is an example of the sorts of procedural protections that Mr. Levin referred to. And I think it is one of many 

areas in which the message throughout our Government in recent 

years has been to indulge inequalities of wealth rather than to police them. 

Ms. SA ́ NCHEZ. And if you can, can you please explain for me the 

difference between a retention bonus and incentive pay? 

Mr. SILVERS. Well, as a business matter, right, there is a notion 

that a retention bonus is designed to keep you at your desk and 

incentive pay is designed to make you do certain things while you 

are sitting there. I think this is a distinction of limited merit, 

frankly. 

I fully understand, I think the AFL-CIO fully understands, that 

the politics of 2005 in terms of moving legislation through, promoted this notion that what we care about is this type of pay rather than that type of pay. I think the concern here is one of amount, 

but more importantly the real concerns here are not this distinction, which can be completely gamed and has been and will be 

again. 

The real issues are twofold. One is simply the question of fairness, of amounts, of what is happening to people. But the more important question is the question of what we are incentivizing executives to do. The current system is one in which if you were sitting 

at your desk as an executive with a company that is not bankrupt 

and you were thinking about bankruptcy as a strategy, as a strategy for reneging on long-term promises made to long-term employees, you can do so today in the relatively certain knowledge that 

you personally will not only not suffer as you will make others suffer, but that you will actually profit by doing that. And that is really the heart of what we see as the problem here. 

30

Now, again, we think that the solutions lie more in what Mr. 

Levin was talking about, procedural devices of various kinds, than 

in absolute caps or bars, for the very reason Mr. Levin said, which 

is that absolute caps or bars are an impediment to successful reorganizations. 

Ms. SA ́ NCHEZ. Thank you. 

Speaking of Mr. Levin, nice segue, Mr. Levin, you suggested that 

limitations on compensation should be specifically targeted against 

those senior executives who are in a position to make self-serving 

compensation decisions. 

How would you devise a solution to implement that suggestion? 

Mr. LEVIN. Well, as I said, the SEC Rule SK, I think it is section 

402 of that rule, lists the kinds of executives that we would contemplate covering, and those are people like the CEO, the executive 

vice president, COO. They have different titles in every company, 

but they are the executive decision-makers that are usually the 

most highly compensated. 

You very often see in a company, the most highly compensated 

individual is a sales manager because he gets a commission on 

sales or she gets a commission on sales and does just a phenomenal 

job selling the company’s product. You don’t want to limit that person. But that person also has no ability to affect his own or her 

own compensation. The executive, being at the top of the pyramid, 

does, and that is where I think the effect should be focused. 

I will complete my answer with that. Thank you. 

Ms. SA ́ NCHEZ. Okay, thank you. 

And I am going to have one further question for you. As one of 

the original drafters of the Bankruptcy Reform Act of 1978, was it 

Congress’s intent that Chapter 11 provide a level playing field for 

the various constituencies involved in a case? And with respect to 

labor interests, do you think unions still have a level playing field 

for participating in Chapter 11 cases? 

Mr. LEVIN. It was definitely intended that all parties be given negotiating tools and levers to be able to sit at the bargaining table. 

Everybody makes sacrifices in a Chapter 11. I say everybody. Suppliers who sell goods after Chapter 11 get paid in full for the goods 

they sell. They are not making sacrifices. They are benefiting by 

being able to continue to do business. But if you don’t pay them, 

they won’t ship. It is that easy. 

But generally speaking, everybody is asked to make sacrifices, 

and there is intent to create a level playing field and some balance 

in the bargaining power. It never can be completely equal, but you 

try to create some balance. 

If anybody has a veto and has a right to walk away from the 

table, there is no need to negotiate, because that person can dictate 

terms. And it is hard to say exactly where that balance is, and it 

keeps getting readjusted every few years, and we hope Congress 

will continue to maintain that balance, because that is what drives 

consensual and therefore successful reorganizations. 

Ms. SA ́ NCHEZ. Thank you, Mr. Levin. 

I would now like to recognize the Ranking Member of the Subcommittee, Mr. Cannon, for 5 minutes of questions. 

Mr. CANNON. Thank you, Madam Chairman. 

31

Congressman Keller has asked me to ask unanimous consent to 

submit for the record the proxy statement with a cover letter from 

Mark Anderson, who is, I think, the vice president for governmental affairs of United Airlines. 

Ms. SA ́ NCHEZ. Without objection, so ordered. 

[Note: The information referred to is not reprinted here but a 

copy has been retained in the official Committee hearing record.] 

Mr. CANNON. I would like to thank you for this panel. This is a 

very thoughtful panel, and we appreciate the input on both sides 

of the aisle. 

This is an initiative that Mr. Delahunt and I worked on in the 

past and one that we need to focus us on. I always find it interesting when Mr. Conyers and I are on the same panel. We often 

agree, which may surprise some folks, but interestingly, when you 

are philosophically clear it is a lot easier to agree, because then you 

can actually talk about what can be done as opposed to posturing. 

And so I want to just thank Mr. Conyers for his kind words and 

for the fact that we are able to be here today and looking at some 

of the things that we can actually do about, what is problematic, 

and it is problematic for reasons that you have all said. 

I think after hearing the panel and some of the questions that 

the Chairwlady has asked, there is actually some consensus on 

this. And after Mr. Levin’s response and Mr. Silvers, your response, it seems to me that there is some consensus that if we have 

procedures, then the parties will be able to negotiate and solve 

problems as opposed to having rigid tests or other mandates. 

Is that a fair conclusion, Mr. Silvers? 

Mr. SILVERS. Yes, I think that is. I think that what our position 

is is that caps, for example, on pay here, is not probably a wise way 

to proceed. And that the distinction between incentive pay and retention pay has proven to be one that can be gamed. 

Mr. CANNON. Right. 

Mr. SILVERS. And so I think we agree there. I am not sure we 

agree on what the procedures should be, but——

Mr. CANNON. Right, but the point is that at least we want to 

have some flexibility there and that a process is going to produce 

a better result than a rigid conclusion. 

Let me just say, Mr. Levin, I really appreciate your long history 

of work in this very difficult broader area and in this particular 

area as well. 

But, you know, I travel from here to Utah. I have lots and lots 

of air miles. And I spend a lot of time talking to stewardesses 

about this problem, mostly with Delta, but as you spoke this morning, Ms. Muoneke, it occurred to me that I would be interested in 

knowing whether you would prefer, retrospectively, to have had instead of a defined benefit pension plan a defined contribution plan. 

Have you thought much about that? 

Ms. MUONEKE. I think personally, and in talking to my fellow 

flying partners, that we would like to have a matching plan. It 

would be in our best interest. 

We did have one previously, but that was nullified by United earlier in my career. I think the difference is that my 401(k) wasn’t 

a plan that I had from the very beginning of my career. This is 

something that was offered to us as a supplement to our defined 

32

benefit pension plan that we all thought we were going to have 

when we retired. 

If I had the choice and had known a number of years ago that 

I was going to have to rely solely on my 401(k), I would have 

planned my retirement differently. I would have tried to maximize 

my funding into my 401(k) instead of now playing catch up, which 

is very difficult to do. 

Mr. CANNON. Right. The problem here, and I feel very sensitive 

asking you the question, because you are not back at the beginning 

and you are stuck where you are right now. 

In particular, you said that your hours were up 40 percent and 

your pay is off $5,000. Is that $5,000 for the whole amount of the 

extra time you are working, or is your net pay, regardless of how 

many hours, less than what you were making before? 

Ms. MUONEKE. To understand how our hours are, it is not as in 

the general public. I, prior to 9/11 occuring, I was flying 75 hours 

a month. Now, 75 hours a month does not include my total time 

away from home. That is just actual in-air flying hours. 

Now I am flying 100-plus hours per month, so that is quite more 

hours per month that I have to fly, just to try to keep myself on 

track to where I was prior to losing my pay and my pension. But 

with my hours being up to what it is now, that means that I am 

away from home a lot more. I don’t have the time to spend with 

my daughter. I have to rely on outside help to get here to different 

places that I need her to go. 

So it is just a difficult situation, not only for myself but my colleagues. We are all facing the same crisis. 

Mr. CANNON. Thank you. I appreciate your willingness to be here 

today. 

I see that my time has expired, Madam Chairman. I yield back. 

Ms. SA ́ NCHEZ. Thank you, Mr. Cannon. 

Now it gives me great pleasure to recognize Mr. Conyers for 5 

minutes. 

Mr. CONYERS. Thank you, Madam Chair. 

I want to suggest to the Subommittee that I am trying to examine the ways that we lift up all of the problems of the witness that 

has testified here in her individual capacity. The fact of the matter 

is there are hundreds of thousands of people in her condition, and 

we need to get a record on this, whether it is from the lawyers that 

represent them, the consumer groups, additional groups coming in, 

but this story has to be a part of the record, not necessarily the 

record of the Subommittee but a record somewhere where we can 

repair to this. 

We are not going to lift up one person’s testimony and say oh, 

that is really bad. There are lots of people out there that are in 

that position, and I would like to invite Chris Cannon and some of 

us to examine ways in which we can compile these records. 

The second thing, I wanted to extent my sympathies to Mr. 

Wintner, whose plea for considering the poor executive who is 

about to lose some compensation, may even lose his job, gosh. Millions of people are being downsized, thrown out of work, kicked 

around all over the place, and we have the responsibility, you do, 

to come to us and tell us, but wait a minute, we don’t want you 

33

guys to go too far in the Congress, but you have got to think about, 

this may worsen the plight of the corporation. 

Never once do you tell us about the incompetent executives that 

brought the company to that position in the first place. What do 

you do about them? Well, nothing. They frequently benefit from 

their own inability to govern correctly. 

And so I just want you to know that I am sympathetic about executives. Man, let us be fair here. We haven’t talked about the difference between Government trustees and private trustees, because 

the Government trustees at the Department of Justice should sooner or later be a witness here, and I am hoping that they do. I am 

getting it from a lot of judges and private trustees, that they are 

all saying that the system is tying the hands of the judges and they 

don’t have any choice. 

I don’t know what is happening here at this hearing. I know 

what I am hearing and being told and I know we are gong to have 

some more hearings about this so that we can get to this problem, 

but are the judges’ hands tied? Something has got to go on the 

record today. 

Now, if we have to take Mr. Silvers’ warning, that we are going 

to get gamed again if we are not careful, I mean we will abolish 

the distinction and we will do some great legislatively-sounding 

great things, but it won’t change the practices and procedures that 

have emanated from that 2005 changes of the 1978 Bankruptcy 

Code. Much of that has gone out of the window. We have got 

means tests now for consumers trying to go into bankruptcy. We 

have got single parents, and here is one, trying to raise a family 

by themselves, and they may end up in a personal bankruptcy of 

their own. Forget the companies and these executives. 

So I see a great challenge and opportunity. That is why I am so 

proud of this Subcommittee on the Judiciary. We are going to take 

this thing apart, issue by issue, and organization by organization. 

And now I would like Mr. Wintner to join with me in the sympathy for the other people that could be harmed in this process. 

[BUZZER] 

Mr. CONYERS. Go ahead. 

Ms. SA ́ NCHEZ. I am going to request unanimous consent that the 

gentleman be given 1 additional minute of time so that the witness 

may respond. 

Mr. WINTNER. Yes, thank you Congressman Conyers and Madam 

Chairman. 

I actually represent various parties to Chapter 11s, in some cases 

debtors, in some cases creditors committees, in some cases individual creditors, in some cases ad hoc bond holders, and many 

other parties. Almost never, at least in a Chapter 11, do I represent the management in their capacity as management. 

My creditor clients, and I am not speaking for anybody here but 

myself, but obviously it is based on my experience, they have no 

desire to overpay management. It is coming out of their recovery. 

Their only interest in terms of retaining or attracting management 

is simply one of self interest. 

Mr. CONYERS. I know you are not kidding me, are you? 

Mr. WINTNER. About which part? 

34

Mr. CONYERS. About the part that they have—here we have examples before you of incredible, unjustifiable excesses, and the next 

thing you tell me after we have taken 5 minutes on this is to say 

they have no interest in giving undue compensation to the top executives. 

Mr. WINTNER. They do not. And in fact, I would support the position stated by the other panelists as well as Members of the Subcommittee, that any procedural improvements which give all parties to the Chapter 11 a say in that executive compensation——

Mr. CONYERS. But what about the incompetent ones? 

Ms. SA ́ NCHEZ. The time of the gentleman has expired. 

If you would like, we can do a second round of questioning in 

which you will be allowed to continue with your question, Mr. Conyers. 

At this time, I would like to recognize Mr. Franks for 5 minutes 

of questions. 

Mr. FRANKS. Well, thank you, Madam Chair. And it is always interesting to come to the Committee. 

Madam Chair, it appears to me that the challenge here sometimes is more basic than some of our examination here might indicate. 

When we try to place at odds the executive of a company with 

the employees of a company, sometimes it becomes—we are focusing the entire effort, I think, on the wrong question. If our only 

concern were the employees of a company, if that were our only 

concern, and a company was having a challenge economically, 

would it not be in the company’s best interest to try to use whatever market mechanisms necessary to bring in the very best possibility of preventing that company from failing entirely and being a 

complete loss, both economically, in terms of the job, and the potential benefits for retirement to those employees? 

And I know that the challenge here for the courts and for us is 

to be able to separate that process, of trying to incent the greatest 

leadership for a company and what those compensation packages 

should look like, and those who would deliberately game the system and, like Mr. Silvers said, try to—that they would be literally 

incented to try to hurt the company and lead it into bankruptcy for 

some of their own financial reasons. That seems to be the challenge 

for me. 

So I guess, Mr. Levin, if I could start with you, what are your 

key criticisms of the KERP’s provisions? And if you could outline 

for us how the court’s struggle with this dynamic. You know, they 

are trying to maintain a market-driven system here. I mean, the 

Soviets didn’t have that. Everybody got paid the same, and it didn’t 

work too well. So they want to try to maintain the market system 

here, and yet they want to keep people from gaming the system. 

How do they come up with that balance? 

Mr. LEVIN. How do the courts come up with that balance? 

Mr. FRANKS. What issues do you think are the key ones that the 

courts struggle with? 

Mr. LEVIN. I think what we have seen in the practice under section 503(c) since it was enacted is that where there is broad agreement among the constituencies in the case, on what the executive 

compensation should be, the courts generally approve the agreeVerDate 0ct 09 2002 09:34 Jun 26, 2007 Jkt 000000 PO 00000 Frm 00038 Fmt 6633 Sfmt 6601 F:\WORK\COMM\041707\34755.000 HJUD1 PsN: 34755
35

ment. And when there is not agreement, the courts generally do 

not. 

There is nothing in the law that says that is how it is supposed 

to work, but on the ground, I think if you look at the background 

report that the National Bankruptcy Conference submitted with 

our testimony here, I think you can trace through those cases and 

see that that is in fact what happens. 

And I think that is consistent with the level playing field, Chapter-11-is-an-invitation-to-a-negotiation concept that Congress built 

into the process 30 years ago. I think that is what is going on. 

In terms of the actual problems, one of the problems that I mention is that 503(c) sweeps too broadly. It sweeps too far down into 

the organization with key performers, important people, as I mentioned, people such as Mr. Allen, that Mr. Silvers mentioned, where 

there are no abuses, there have been no abuses. And that would 

be one change that we recommend. 

And the other is to impose the procedures and the measured 

process that allows people to get to the negotiating table and get 

agreements. 

Mr. FRANKS. Well, Mr. Levin, let me try to expand on that just 

a little. 

Just a hypothetical situation. If you have got a company, a large, 

say, airline company, that has through incompetent leadership 

come to the point where they are in dire trouble, and you are only 

concerned about maintaining the company for the sake of the employees, what impediments are reasonable to say to that company, 

well, there are only a few people out there that can turn this 

around, and that is a highly competitive market out there for these 

people, but we are going to say to you that you can’t hire them except under these conditions. 

What impediments are reasonable? Shouldn’t we pull out all 

stops to save the company? 

Mr. LEVIN. Again, as I said earlier, pulling out all stops runs the 

risk of allowing one constituency to dictate the outcome. The other 

constituencies who participate in the negotiation process understand what you just said, that you need good people to try to save 

the business. And that you don’t attract new management, assuming you had bad management, you want new management, you 

don’t attract new management by paying way under-market. 

So there is a balance. We hope that by attracting new people it 

will increase the overall value of the company and, therefore, diminish the pain that has to be shared among the various constituencies. But I don’t think you can do that with a one-size-fits-all 

rule. It has got to be people understanding what their interests are, 

whether it is creditors or employees, understanding that new people, new management, can improve the situation, and that ought 

to be pursued without excess. 

But define excess. It is, ‘‘how high is the sky?’’ You can’t define 

excess in general. It has to be case specific. 

Mr. FRANKS. Thank you, Mr. Levin. 

Thank you, Madam Chair. 

Ms. SA ́ NCHEZ. The time of the gentleman has expired. Thank 

you. 

I would like to recognize at this time Mr. Johnson for 5 minutes. 

36

Mr. JOHNSON. Thank you, Madam Chair. 

Now, no doubt that there have been numerous documented instances of corporations that have been mismanaged by high paid, 

excessively, obscenely paid, executives, and then that corporation 

may find itself in bankruptcy, where the issue becomes whether or 

not there will be a liquidation or whether or not there will be a reorganization. 

And, of course, when there is a liquidation, it means there is a 

cessation of the operations of the business, the creditors lose, the 

workers los, anybody who has ongoing relationships with the business loses. And then if there is a reorganization proposed, then 

there is a chance for the business to remain viable and perhaps be 

able to pay back either all or a percentage of its creditors and, of 

course, be able to pay its employees as it continues to operate. 

Certainly a reorganization is probably better for all concerned, 

including the workers, than a liquidation. And in the case of a reorganization, then the issue becomes how much do you pay the executives to run the company and try to get it out of Chapter 11 and 

back to viability. And so executive compensation, how much do we 

pay the executives to lead the company out of bankruptcy, and I 

believe that that is one of the issues that we are here to address 

today. 

And I have heard some comments, that we should have some 

limitations on compensation, and I have also heard that caps are 

not a solution. So if I could hear from each one of you as to your 

opinion about limitations on compensation, does everybody agree 

that there should be limitations on compensation during a reorganization? If so, what does the—what impact does that have in 

terms of the business’s position in the overall marketplace? 

And, number two, if you should have limitations on compensation, how can that be accomplished? 

Mr. Silvers? 

Mr. SILVERS. The AFL-CIO would like two specific things done 

in this area as part of the broader examination that Madam Chairwoman described as an effort to restore balance as a whole to the 

bankruptcy system. 

The two specific things we would like are, one, the extension of 

broader review powers over executive comp from the KERP area, 

where we only look closely at retention, to look at the package as 

a whole, because of this issue of judges feeling like their hands are 

tied. 

Secondly, we want executives who are contemplating making war 

on their employees, doing to people what was done to Ms. 

Muoneke, we want them before bankruptcy to realize that if they 

do so, what they do to others will happen to them. And that is the 

second principal we want embodied in law, and it is not a principal 

about how do you review comp after the fact, it is about what you 

have to think about beforehand when you are thinking about hurting other people in the way that hundreds of thousands of American workers have been hurt in this process. 

Mr. JOHNSON. Okay. Do unto others as you would have them do 

unto you, perhaps, as a system of imposing that. 

Mr. SILVERS. Pretty much. 

37

Mr. JOHNSON. Let me ask, Mr. Levin, your position, and then 

Mr. Wintner, and then if you have got anything that you would like 

to say on that, Ms. Muoneke. 

Mr. LEVIN. The National Bankruptcy Conference I think would 

not favor any limits on compensation per se. They are too hard to 

define. One-size-fits-all does not work. 

I think our focus is more on making sure that executives are not 

in a position to line their own pockets, that the process prevents 

that, through the negotiation process and court supervision, imposing reasonableness standards. 

You can’t define what is reasonable in any particular case without understanding the facts. 

Mr. JOHNSON. Does the law enable that process to take place 

right now or do we need some revisions of the law? 

Mr. LEVIN. I think revisions would be appropriate. I think, as I 

noted——

Mr. JOHNSON. To give the judges more authority to gauge exactly 

how? 

Mr. LEVIN. Well, right now the law permits incentive plans 

under a very broad standard and it effectively prohibits retention 

plans. And we think those could be brought more into balance. 

Incentive plans are useful because if they work, people actually 

perform. 

Mr. JOHNSON. All right. 

Ms. SA ́ NCHEZ. The time of the gentleman has expired. 

I would now like to recognize Mr. Cohen for 5 minutes. 

Mr. COHEN. Thank you, Madam Chair. 

Before I start, I would like to yield as much time as he desires 

and needs to the honorable Chairman of this Judiciary Committee, 

Mr. Conyers. 

Mr. CONYERS. Well, that is very kind of you, Mr. Cohen. 

Mr. Levin, would you share my concerns, please, because all this 

emphasis on negotiation sounds very fair. Well, guess what? The 

corporations have a huge advantage sitting across from the union 

representatives because they will say, ‘‘Look, guys, if you don’t go 

along, guess what? We are going to liquidate.’’ And that is what 

they are doing now and that is what they will be doing after all 

this talk about fair negotiations is over with. 

And I thank my colleague for yielding. 

Mr. COHEN. Thank you, sir. 

Mr. Levin, is there a system right now where if something shocks 

the conscience of the court, the court is supposed to act? 

Mr. LEVIN. Yes. The court has the unquestioned authority to disapprove a transaction that is completely outside the bounds of reasonableness. I think the standard that would—I am having trouble 

coming up with the exact standard that the courts use, but certainly shock the conscience would get there. 

Mr. COHEN. How often does that occur? What percentage of 

cases, do you think? 

Mr. LEVIN. Well, since most of the cases where the court approves things—we are talking the executive comp area or are we 

talking more generally? 

Mr. COHEN. Executive comp. 

38

Mr. LEVIN. Okay. In the cases where the courts have approved 

things since the enactment of 503(c), there has been general agreement among the parties in the case, and so we haven’t seen a situation where the court has approved something that one might say 

shocks the conscience, because there maybe disagreement about 

how reasonable it is, but it is not up to that standard and there 

is, as I said, objections and the comp plans have been withdrawn 

and the courts have approved. 

The courts have disapproved where there has not been consensus, even on matters that don’t quite shock the conscience but 

just are outside some bounds of reasonableness. 

Mr. COHEN. Mr. Silvers, you brought to our attention Mr. Cooper 

and his turnaround for Enron, and I hate to say it, I guess in this 

room I talked about having some stock in one of those companies 

that kind of went south on the radio, I guess it was Sirius, and I 

had Enron too, so I am not real thrilled about his $100 million or 

whatever. 

Did anybody object to his compensation? 

Mr. SILVERS. Yes, in fact this is one instance where the U.S. 

Trustee objected to the final $25 million, it got cut in half, so it 

ended up being a final bonus of $12 million in the Enron case. But 

right at the margin, right. 

And let me extend my condolences on behalf of the 10 million 

AFL-CIO members, pretty much every one of whom in some fashion or another also owned Enron. 

Mr. COHEN. What was Mr. Silvers’ hourly compensation—Mr. 

Cooper’s, I am sorry. 

Mr. SILVERS. Well, it is hard to say. He came in, and I think, because we don’t actually know actually what he individually got out 

of this—he came in in December of 2001 and he was there, I think 

they were still doing it, it was in—it took several years. I forget 

the—it was 2 or 3 years. 

If you figure he worked a hard couple of years, that he was at 

work, oh, maybe twice as much as most of us are, so 10,000 hours 

a year—no, that is 4,000 hours a year, say 3 years, that is 12,000 

hours. You are talking about a very large number. $100 million divided—$10,000 an hour I think it comes out to. 

Mr. COHEN. But did he bill an hourly rate or did he just bill a 

gross rate for his services? 

Mr. SILVERS. Again, I think this is—let me edit what I just said. 

That is for the firm. We don’t know—I couldn’t tell you how many 

people, I am sure it is in the court record, were compensated as a 

result of that $120 million. 

What we do know is that following this engagement, Mr. Cooper, 

who by the way, I don’t mean to suggest he is a bad man or a crook 

or anything like that. He was a businessman, he went and did the 

job, he got paid. But he got paid an enormous amount of money, 

and the measure we have of that is that he was able to, in the most 

expensive real estate market perhaps in the world, he was able to 

buy one of the most expensive properties. And I think that tells us 

something about sort of what the pay out was at the end. 

Ms. SA ́ NCHEZ. The time of the gentleman has expired. 

I am going to enquire of the members who are still present if 

there is interest in a second round of questioning. I know I have 

39

a couple more questions I would like to ask, if anybody else is interested in asking questions? If not, I will just ask unanimous consent to—I would like unanimous consent for 3 additional minutes 

to ask questions. 

Without objection, so ordered. 

Mrs. Muoneke, can you tell us some of the concessions that the 

employees were forced to make as a result of going into the Chapter 11 bankruptcy? Some of the things that you guys gave up? 

Ms. MUONEKE. The bulk of our concessions, other than pension, 

was work rules. Work rules is, like they govern our job at United, 

and we have had to give up quite a bit with that, which means we 

are working longer hours, our job responsibilities have increased 

two-fold, but we are paid less than what we were paid prior, but 

we are expected to do twice the amount of what we were initially—

what our job description had initially set out for. 

And job rules may not be a major thing to you, but for us, it is 

everything for us. 

Ms. SA ́ NCHEZ. I am sure it governs childcare and numerous other 

issues. 

Mr. Levin, I am interested, and I think Mr. Conyers made an excellent point about feeling sorry for the poor, beleaguered executive 

when we hear testimony about what the real rank and file worker 

gives up when they are making sacrifices for the company and the 

sacrifice doesn’t seem to be equaled by those at the top, who always 

seem to be taken care of in one respect or the other. 

I am interested to ask, Mr. Levin, do you think an airline can 

continue to exist without dedicated rank and file employees who do 

the day-to-day of the airline? 

Mr. LEVIN. As Mr. Cannon said earlier, I too fly quite a lot, and 

I rely very heavily on those dedicated employees who are good at 

their jobs and careful in protecting our safety and our comfort 

while we are en route. They are critical. 

Ms. SA ́ NCHEZ. Would it be safe to say that in the Chapter 11, yes, 

there is concern that you want to keep good management around, 

but shouldn’t there also be an equal concern that you keep good 

employees around who will continue to make the business a going 

concern? 

Mr. LEVIN. There is no question about that. I don’t want to frame 

this, though, as a zero sum game. 

Ms. SA ́ NCHEZ. I understand that. I think everybody was interested in making sure that the airline continued in business, because if not the rank and file sure don’t get paid, nor do the executives. Although it seems to me that the way things are structured, 

which we have an inordinate amount of concern for keeping good 

management, but we don’t have that same and equal concern about 

keeping good rank and file employees. 

I mean, correct me if I am wrong, but usually in restructuring 

or in bankruptcy, one of the things that they tend to do is slash 

jobs and then give bonuses to executives because they are making 

the company leaner. I mean, who is bearing the bulk of the sacrifice in that scenario? 

Mr. LEVIN. You are right. It is a very difficult question. We want 

to protect jobs. That is what Chapter 11 is about. 

40

Companies sometimes over-expand, and the only way you can get 

them healthy again is by cutting them back. You can’t cut a company back by keeping all of its suppliers, all of its workers, all of 

its other obligations, in an overexpansion situation. That is got to 

be done in the most humane and constructive way possible, in a 

way that is going to preserve the best value of the company for the 

stakeholders there. 

I don’t question that at all, that that is an important consideration in Chapter 11. But to try to preserve a company as it is when 

it went in, if it were healthy enough to do that, it wouldn’t have 

needed to go into bankruptcy. 

So it is difficult to sit here and dictate a balance that makes that 

work. All of those factors must be taken into consideration. 

We are not arguing that there is any particular sympathy for the 

executives. 

Ms. SA ́ NCHEZ. I understand that. 

Mr. LEVIN. What we are simply saying, is like I mentioned earlier, the suppliers, if you tell suppliers that are shipping fuel to the 

airline, sorry, we are only gong to pay you 50 percent of the market 

price of the fuel, they will go sell elsewhere. And we want to keep 

the employees, but we don’t want management to say—maybe in 

an industry like airlines there aren’t other jobs and you don’t need 

to worry about keeping them in a very—in an area where there is 

a very competitive labor market at the executive level. 

It is not a question of concern for the executives. It is a concern 

to fill those jobs rather than having employ slots. 

Ms. SA ́ NCHEZ. I understand that. I am just simply trying to point 

out the fact that there seems to be an inordinate amount of time 

and attention that is focused on preserving jobs or preserving executive positions, and less so on the rank and file members who can 

be let go summarily and, you know, who have already made concessions with respect to pension benefits or health care benefits or 

even wage or hour benefits. And you know, they are let go and nobody really cries, for them in the end. At least we are not looking 

to retain—we are not so focused on retaining those employees. 

It seems to me that there is an imbalance in terms of how the 

value of each of their work is viewed. 

Mr. CONYERS. Madam Chairman? 

Mr. LEVIN. I didn’t mean to suggest that at all, Madam Chair. 

So if I did, I apologize. 

Ms. SA ́ NCHEZ. I understand. 

Yes? 

Mr. CONYERS. Madam Chairman, would you yield for just a momentary observation? 

Ms. SA ́ NCHEZ. My time has expired, but I will unanimously recognize you for 1 minute, Mr. Chairman. 

Mr. CONYERS. All right, thank you. 

You know, gentlemen and lady, you know what bothers me, 

frankly? When you lay off a multi-millionaire and you lay off somebody making $40,000 a year, there is one hell of a difference. A 

person, an executive who loses his job, the worst thing that can 

happen to him, he is already wealthy. He is already in the top 1 

percent, over $100,000 a year. 

41

So to even pretend that losing an executive’s job is the same as 

Ms. Muoneke losing her job doesn’t even compute. 

Ms. SA ́ NCHEZ. Thank you, Mr. Conyers. 

I am also going to ask unanimous consent to include in the 

record additional statements by Patricia Friend, who is the international president of the Association of Flight Attendants. 

Without objection, it is so ordered. 

[The prepared statement of Ms. Friend can be found in the Appendix.] 

Ms. SA ́ NCHEZ. There being no more questions, we would like to 

thank all the witnesses again for their testimony today. 

Without objection, Members will have 5 legislative days to submit any additional written questions, which we will forward to the 

witnesses and ask that you answer in as prompt a manner as you 

can, and those responses will also be made part of the record. 

Without objection, the record will remain open for 5 legislative 

days for the submission of any additional material. 

Again, I want to thank everybody for their time and patience at 

this hearing of the Subcommittee. 

This hearing of the Subcommittee on Commercial and Administrative Law is adjourned. 

[Whereupon, at 12:01 p.m., the Subcommittee was adjourned.] 

(43)

A P P E N D I X 

MATERIAL SUBMITTED FOR THE HEARING RECORD

PREPARED STATEMENT OF THE HONORABLE STEPHEN I. COHEN, A REPRESENTATIVE

IN CONGRESS FROM THE STATE OF TENNESSEE

I am interested in hearing from the witnesses regarding whether Congress needs 

to take legislative measures to address the practice of Chapter 11 debtors using 

sometimes-exorbitant ‘‘incentive’’ packages for their executives, particularly when 

those same debtors impose enormous financial hardships on their employees in the 

name of achieving a financial recovery. Congress has already addressed its concern 

regarding high executive compensation given by Chapter 11 debtors to their executives as retention compensation. It may be time to take a similar approach with respect to incentive-based compensation.

44

NEWS RELEASE CONCERNING AMERICAN AIRLINES FLIGHT ATTENDANTS’

NATIONWIDE PROTEST


4.eps
45

SUBMISSION ENTITLED ‘‘2003 SACRIFICES FROM AA FLIGHT ATTENDANTS

RESTRUCTURING AGREEMENT’’


5-1.eps
46


5-2.eps
47

SUBMISSION ENTITLED ‘‘AMERICAN AIRLINES FLIGHT ATTENDANT FACTS’’


6.eps
48

SUBMISSION ENTITLED ‘‘APFA FACTS ON AMERICAN AIRLINES EXECUTIVE BONUS VS

EMPLOYEE CONCESSIONS’’


7.eps
49

PREPARED STATEMENT OF PATRICIA A. FRIEND, INTERNATIONAL PRESIDENT, 

ASSOCIATION OF FLIGHT ATTENDANTS—CWA, AFL-CIO 

Chairman Sa ́nchez and members of the subcommittee, thank you for holding this 

timely hearing and exposing a troubling trend that threatens to erode the great 

American middle class and damage workers confidence in our economic system. 

My name is Patricia A. Friend and I am the International President of the Association of Flight Attendants—CWA (AFA-CWA), AFL-CIO. AFA-CWA represents 

over 55,000 flight attendants at 20 different airlines throughout the United States 

and is the world’s largest flight attendant union. 

When companies enter bankruptcy, employees are the first to suffer the consequences as management demands drastic pay and benefit reductions. To add insult to injury, management then shops for potential investors, using their employees 

reduced standard of living as a selling point in hopes of exiting bankruptcy with 

large sums of fresh capital. Employees then scrimp to get by as management gouges 

on new investments and rewards themselves outrageous bonuses. 

Can you see why employees feel exploited? 

Can you imagine the anger and outrage that working Americans feel when their 

sacrifices bankroll bonuses and higher standards of living for a few executives. 

Corporate executive compensation in the United States is off the charts, but in 

the airline industry, the abuse is at its worst. In 2005, American executives paid 

themselves at a rate more than 400 times that paid to rank-and-file employees—

a disparity in wages not seen since the 1920s—and, in 2006, the median CEO compensation increased 48 percent to $30.2 million Nowhere is the injustice of the great 

wage divide more palpable than in the executive suites of our nation’s airlines. 

Since congress passed the Airline Deregulation Act of 1978, one-hundred-sixty 

(160) carriers have filed for bankruptcy and aviation workers have for too long paid 

the price for mismanagement. The lessons should have been clear from this tragic 

track record, yet congress and our judicial system have ignored the best interests 

of American workers and have been complicit in allowing executives the use of our 

bankruptcy system to enrich themselves at the cost of their employees. 

Recent examples highlight why congress should take immediate action to address 

this great injustice. 

The moment United Airlines emerged from bankruptcy, company managers raided 

its coffers. Far exceeding even the median money grab, United Airlines CEO Glenn 

Tilton took $39.7 million in 2006 compensation. This, after cutting its work force 

by 25 percent, dumping its workers’ under funded pensions and extracting profound 

sacrifices from its employees during its three years in bankruptcy. 

Incredibly, Mr. Tilton’s compensation package was greater than the entire profit 

at United Airlines for 2006. This case alone should compel you to act. Sadly however, there is fresh and ample evidence of excessive greed in airlines executive 

suites. 

At Northwest Airlines, management recently disclosed a plan to exit bankruptcy 

that would reward its top 400 executives with an average of $1 million each and 

give nothing back to flight attendants whose wages, benefits and working conditions 

have been decimated in bankruptcy. Last year, after flight attendants at US Airways endured massive pay cuts over several years, the airline’s executives rewarded 

themselves multiple million in stock bonuses and double-digit pay increases. Employees at American Airlines have not been compensated for the $1.6 billion in concessions they gave in 2003 to keep their airline out of bankruptcy, while AMR CEO 

Gerard Arpey took more than $7.5 million in a stock award for 2006. 

Congress must take action to rein in management’s use of our bankruptcy system 

to raid the coffers of American companies, some of whom were built by generations 

of hard working employees. Our judicial system is complicit in this growing greed. 

Our courts have largely ignored the pleadings of employees in bankruptcy cases providing no protection for those most vulnerable when a company reorganizes. 

Can any of us remember the last time a bankruptcy court rejected a compensation 

package for management? 

Irresponsible management of our nation’s airlines has been taken to an extreme. 

As if in a winner-take-all game of Monopoly, airline executives seem to be on an 

unstoppable trajectory, with greed as the only rule of the game. Your efforts to put 

an end to excessive compensation and to rectify bankruptcy laws will serve the 

greater interests of all working people who depend on a healthy and just economy.

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