* Judge says payout plan primarily to keep people in jobs
* Execs not incentivized for payouts, judge says
* SEC probing ResCap over underwriting, securities sales
By Jonathan Stempel and Rick Rothacker
Aug 28 A federal bankruptcy judge on Tuesday
rejected Residential Capital LLC's proposal to pay as much as $7
million worth of in centive b onuses to 17 senior executives,
saying the payout was primarily retentive -- a reward for
staying in their jobs.
U.S. Bankruptcy Judge Martin Glenn said the "key employee
incentive plan" proposed by Residential Capital, the mortgage
unit of Ally Financial Inc, did not link the bonus payout of
$4.1 million to $7 million closely enough to meeting the
"challenging financial and operational goals" meant by an
The Manhattan judge also found that 63 percent of the payout
could vest upon the sale of major assets, which ResCap believes
are worth nearly $4 billion.
ResCap's plan "is primarily retentive in nature," and
"appears to attempt an end-run" around federal bankruptcy laws,
The judge gave ResCap permission to draft a new plan to
address his objections, as well as objections previously voiced
by the federal government.
U.S. Trustee Tracy Hope Davis, whose office is a component
of the Department of Justice, said in a court filing ResCap's
proposed plan "sets a low performance bar" and "does not provide
real incentives for the employees to improve their performance,
work harder, and achieve results greater than in the past."
ResCap plans to resubmit an incentive plan consistent with
the court's decision, after consulting with the U.S. Trustee and
other parties, company spokeswoman Susan Fitzpatrick said.
"ResCap believes the plan is necessary to help our company
maintain operational stability, transition the business as a
going concern, and successfully emerge from the Chapter 11
process having preserved its value for all stakeholders," she
The 17 people who would have been eligible for payouts did
not include ResCap Chief Executive Thomas Marano.
Glenn's decision reflects the closer scrutiny bankruptcy
judges are giving to incentive payouts that critics say have
little to do with maximizing the value of bankrupt companies.
Earlier this month, Glenn approved a separate plan to award
$10.8 million of incentive payments to 174 other ResCap
employees, including people who work in finance, legal,
origination, technology and other operations.
ResCap filed for Chapter 11 bankruptcy protection on May 14
to address mortgage-related liabilities. U.S. taxpayers own
roughly 74 percent of Ally, which was once part of General
Motors Corp. Ally did not file for court protection.
In a separate matter, the U.S. Securities and Exchange
Commission said it is formally investigating ResCap for possible
misconduct in loan originations and underwriting, and possible
fraud in the sale of mortgage-backed securities.
It disclosed that probe in a court filing seeking to force
printing company R.R. Donnelley & Sons Co to turn over
records it prepared for investment banks that underwrote those
securities. Ally and ResCap declined to comment on that matter.
The case is in re: Residential Capital LLC, U.S. Bankruptcy
Court, Southern District of New York, No. 12-12020.