A proposal from 24 Hour Fitness Worldwide Inc. to pay a total $8.8 million in bonuses to 22 senior managers is “excessive and unreasonable,” a federal bankruptcy watchdog says.
The bankrupt health club operator hasn’t proven that the performance metrics for the senior managers to receive the awards will actually incentivize them, the U.S. Trustee’s Office, a Justice Department agency that oversees bankruptcy proceedings, said in a filing Tuesday with the U.S. Bankruptcy Court for the District of Delaware.
In addition to the $8.8 million key employee incentive program (KEIP), the company also asked for up to $6.15 million for bonuses to help retain 302 less-senior employees. The median award for the key employee retention program (KERP) would be $19,000.
Dewey Imhoff, a financial consultant for 24 Hour Fitness, summarized both plans in a redacted court filing that didn’t detail how the awards would be distributed.
Under the bankruptcy code, debtors must prove that bonus programs actually create incentives and don’t just operate to retain employees, the U.S. Trustee said in its objection. “For a bonus plan to be incentivizing, it should be tied to significant goals that are difficult to achieve,” it said.
Yet the targets the gym operator listed for the third and fourth quarters of 2020 are “significantly below” levels in the same quarters last year, the U.S. Trustee said.
24 Hour Fitness filed for bankruptcy in June after its gyms shut down amid efforts to contain the coronavirus pandemic. The company is using its bankruptcy to restructure its $1.4 billion in debt.
A hearing on the KEIP and KERP proposals is scheduled for Sept. 15.
The case is In re 24 Hour Fitness Worldwide, Inc., Bankr. D. Del., No. 20-11558, objection filed 9/8/20.