Judge wants Delphi to slash exec bonuses before bankruptcy exit

A judge said Tuesday that he would approve the bankruptcy exit plan of auto parts supplier Delphi Corp. after it drastically reduced the total payout of cash bonuses to top executives.

The Troy, Mich.-based company’s plan is a reorganization blueprint that largely shifts its manufacturing to cheaper overseas plants and eliminates tens of thousands of union jobs in the U.S.

Delphi hopes to emerge from court protection before the end of March but must first secure exit financing in a tough credit market.

An executive said it expected to get a commitment for $4.5 billion in financing by Tuesday, but there was no indication Monday that the company was close to securing the loans.

Delphi supplies some of the world’s biggest automakers, including General Motors Corp., Ford Motor Co., Volkswagen and Hyundai Motor Co.

U.S. Bankruptcy Judge Robert Drain told Delphi to slash executive cash bonuses to $16.5 million from a proposed $87.9 million, which the company had intended to distribute to more than 500 managers upon emergence.

The judge let stand the part of the company’s compensation proposal that gives more than 500 managers stock totaling 8% in the reorganized Delphi.

The United Auto Workers union argued the compensation plan was unfair to union workers, many of whom took early retirement or buyout offers to help the company get out of bankruptcy.

Executive compensation was the most significant change to corporate bankruptcy law under a reform act put into effect in 2005, just nine days after Delphi filed for bankruptcy. The change was designed to prevent companies from giving executives retention bonuses.

The company’s own compensation consultant, Nick Bubnovich of Watson Wyatt Worldwide, said Friday that the cash-bonus plan had some characteristics of a retention program, and that he knew of no other company in bankruptcy that rewarded such a large number of executives for emergence.