WHITE PLAINS, N.Y. — A&P is asking U.S. Bankruptcy Court for permission to enact a short-term incentive plan it said would help retain key employees and improve company performance while it operates under Chapter 11 bankruptcy protection.
The proposed plan would reward a group of 146 salaried employees up to $6.8 million in cash, provided the chain can reverse a decline in same-store sales while maintaining or improving merchandise margins during a 28-week period beginning with the commencement of A&P's new fiscal year Feb. 27. The plan could allow four senior executives to earn 175% of their base salaries while providing 100% bonuses for other participants, including the company's chief information officer, senior vice presidents, vice presidents, senior directors, directors, district managers and senior category managers.
A&P's chief executive officer, Sam Martin, and Jake Brace, its chief restructuring officer, are specifically left off the program but would look to negotiate separate incentive agreements, the company said.
"In doing so, these individuals sought to eliminate concerns about 'executive enrichment' and build consensus around their efforts to address an immediate business need," A&P said in a filing.
Awards under the proposed plan are payable only upon achievement of defined performance thresholds over seven four-week reporting periods. The chain set "targeted" levels of same-store sales growth of negative 1.6% vs. the same period last year, and merchandise margins of 34.8%, to earn 66% of bonuses. Negative 3.6% same-store sales and 34.6% merchandise margins would pay 33% of the bonuses. Sales gains of 1.4% and margins of 35.1% would result in maximum payouts.
A&P would be cycling same-store sales declines of between 6% and 9% and 2010 merchandise margins of 34.5%. Meeting targeted levels would result in incremental revenues of $18 million net of bonuses, the company said.
The company said the incentive program would keep competitors from poaching talent while rewarding workers who, due to cost cutting and layoffs, have more responsibilities. A&P said 18 salaried executives have left since the company filed for Chapter 11 in December, including its chief financial officer, Brenda Galgano.
"Recruiters are targeting certain members of the debtors' management team, and the debtors' management team includes many individuals without long-standing ties to the business," A&P argued. "The loss of a handful of key employees could quickly cascade into broad-based departures across the debtors' operations, unraveling their restructuring from the inside out."
A&P seemed aware of the potential for controversy the incentive plans might generate, particularly as it looks to address legacy labor costs as a major part of its financial restructuring. Such incentives, it said, "are often one of the most highly-charged issues in any chapter 11 case — particularly in an operational restructuring where shared sacrifice may be required to save the business."
A&P will argue for the incentive program at a March 8 hearing.
