It’s no secret that the nation’s car rental companies have been taking a beating since the coronavirus shutdowns began. Their fortunes are largely tied at the hip to those of the airline industry, which is also being battered by massive reductions in ticket sales. Hertz is one of the bigger car rental agencies in the nation and they recently announced that they are seeking bankruptcy protection as their losses soar into the billions and debts on their fleet of half a million cars come due. But before they pulled the trigger on that drastic measure, they decided to pay out tens of millions of dollars in bonuses to their executives before laying off half of their workforce. And people aren’t happy about it. (CNN)
Hertz paid out millions of dollars in bonuses to its executives just before its bankruptcy — and a month after it started laying off thousands of employees.
Retention bonuses are typical for bankrupt companies that want to prevent their management from abandoning ship. But they’re always awkward: the company can’t pay its employees or its debts to lenders, but it prioritizes payments to its already handsomely paid bosses.
Hertz (HTZ) paid a total of $16.2 million to 340 executives on May 19 as part of a plan to keep them in place while the company attempts to reorganize, the company announced in a filing with the Securities and Exchange Commission. The executives will be required to return the money should they leave Hertz on their own before March 31, 2021.
There’s no way around this situation when it comes to optics. This looks bad. And I mean really, really bad. Laying off literally half of your rank and file workforce while simultaneously dishing out more than sixteen million to your executives isn’t going to win you any brand loyalty awards. But what anyone can do about it (aside from voting with their wallets) is another matter entirely.
Hertz is a private company. It’s their money and they get to decide how to handle it and then live with the consequences. I assume they are confident that they will emerge from bankruptcy successfully after the pandemic passes and they’re apparently placing more value on retaining their executives than keeping the loyalty of their line workers.
Hertz would be facing more public scrutiny (and potentially legal problems) if they had taken government bailout money before doing this because then the taxpayers would have a seat at the table. But none of the car rental companies received bailouts in the original aid package. To be sure, it wasn’t for a lack of trying. Hertz was openly asking for a bailout more than a month ago. Some sources inside the company indicated that former CEO Carl Icahn had been trying to leverage his long relationship with Donald Trump in an effort to get in on the bailout cash, but his efforts were fruitless.
The possibility of the company being sold off instead of making it through bankruptcy is still on the table. The most likely buyer would be Avis, a company that’s done somewhat better during the pandemic.
I’m going to play Devil’s Advocate for a moment here when it comes to Hertz. Yes, this news looks terrible for them and their workers (and former workers) are going to be very angry about this. But since they didn’t get any bailout money, it’s up to them how they get out of this hole. It would be much more difficult to locate an hire new top-end executives with the required applicable experience in their industry than to hire a gang of people to work at the counters. If this is the only path forward they see when I’m not going to come down on them too harshly. They’ll potentially lose some customers who are more sympathetic to the plight of the workers, but that’s probably a gamble they’re willing to take at this point.