MF Global plans bonus payouts for 3 executives: source

NEW YORK Fri Mar 9, 2012 5:51pm EST

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NEW YORK (Reuters) - Three top executives at MF Global Holdings Ltd kept on since the commodities firm's collapse could receive performance-based bonuses under a retention plan being prepared by a court-appointed trustee, people close to the trustee said.

Trustee Louis Freeh plans to ask a bankruptcy judge to approve the employment agreements, said these people, who spoke on condition of anonymity because the plan is still being crafted.

The plan includes bonus payouts for Chief Operating Officer Bradley Abelow, General Counsel Laurie Ferber and Chief Financial Officer Henri Steenkamp if they meet certain targets.

But that does not necessarily mean the bonuses will ultimately be paid or that the executives will earn as much total compensation as they have in the past.

Abelow, Ferber and Steenkamp are among a handful of employees asked to stay on after MF Global's October 31 bankruptcy to help Freeh, a former director of the U.S. Federal Bureau of Investigation, recover assets to be paid out to creditors.

The retention plan would set out the terms of that employment, and performance-based incentives will be an aspect of that plan, one of the people said.

But the employees are still likely to make less money than they did last year due to overall pay cuts, the people said.

For example, Abelow, whose salary had been more than $800,000, is now working for $60,000.

The bonuses would also not necessarily be approved by the bankruptcy court. Once the retention plan is filed, parties will have a chance to object ahead of a hearing to determine the plan's merits.

MF Global collapsed after it was forced to reveal it had bet billions on European sovereign debt, a disclosure that led to credit-rating downgrades and unnerved investors. CEO Jon Corzine resigned days later.

An adviser at Freeh's consulting firm, which is handling the MF Global case, confirmed that a retention plan is in the works, but would not offer detail on bonuses.

The adviser, Frank Piantidosi, said that MF Global - and therefore creditors - benefit from the retention of Abelow, Steenkamp and Ferber.

"In fact, it would cost more to the estate to replace them with outside consultants who would be less familiar with the firm's operations," Piantidosi said.

An attorney for Freeh said retaining employees is "the most cost-effective way to effectuate the liquidation" of MF Global's estate.

But Bill Brandt, chief executive of turnaround firm Development Specialists Inc, does not buy that argument.

Brandt, who is not involved in the case, said judges in many districts have stopped allowing bonuses for executives of bankrupt firms.

"The one place they still get paid is the Southern District of New York," where MF Global's bankruptcy is playing out, Brandt said.

Recent changes to bankruptcy laws typically bar bonuses, he said, but lawyers in New York's southern district have found "some pretty innovative ways of saying these aren't bonuses, but rather incentives linked to performance," Brandt said.

"My guess is the U.S. Trustee's office, and other parties, will object."

The potential payouts were first reported by the Wall Street Journal in its Friday editions. The three executives could get bonuses of as much as several hundred thousand dollars each under the plan being finalized, the newspaper said.

It is not uncommon for bankrupt firms to try to retain key executives by offering bonuses tied to performance that increases value for creditors.

But pay issues are prickly in the case of MF Global, whose commodities customers are missing an estimated $1.6 billion that investigators say was improperly removed from their accounts in the days leading up to the company's downfall.

The firm has been under federal investigation over the transfers of client money, and top executives, including Abelow and Steenkamp, have been named as defendants in multiple civil lawsuits filed by customers demanding damages.

Corzine did not seek roughly $9 million in severance he was set to receive when he resigned. Former retail chief J. Randy MacDonald also sacrificed about $9 million in severance when he left the company on November 17.

The company's brokerage unit, MF Global Inc, is being wound down by a separate trustee, James Giddens, who still employs about 70 former MF Global employees to help with the process. But those employees do not get bonuses, a spokesman for Giddens said.

"They are getting a salary but no bonus," spokesman Kent Jarrell said. "None of these employees has decision-making authority, and each of them is under the direct control of either a lawyer or staff."

Jarrell said that Giddens' office has no comment on the parent company's compensation practices, "except to note they are obviously different than ours."

The bankruptcy is In re MF Global Holdings Ltd, U.S. Bankruptcy Court, Southern District of New York, No. 11-15059

The brokerage liquidation is In re MF Global Inc, in the same court, No. 11-2790.

(Reporting By Nick Brown; Editing by Martha Graybow and Richard Chang)

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