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Why Borders' Call for Fat Executive Bonuses Is Absurd

File this one under WTF. While it struggles to restructure debt under Chapter 11, Borders (BGP) is asking bankruptcy court to approve $8.3 million for executive bonuses. That includes $1.7 million to president Mike Edwards and a pay boost of between 90 and 150 percent of their base salaries for five other top execs.

The payouts are performance-based and depend on how quickly Borders exits bankruptcy or is sold. However, with Borders total debt tipping the scales at $1.29 billion -- owed mainly to Random House and Simon & Schuster (CBS) -- and with the planned closure of at least 200 stores, the whole program seems preposterous, not to mention heavy on the "last-ditch effort." The company didn't give incentives in 2010, or any raises in the last four years.

For one, Borders' executive suite has resembled a game of C-level musical chairs over the past two years. Consider: Edwards is the third CEO since 2009. Five rounds of layoffs in 2010 rocked the management team and the company began the New Year with the departure of five top executives, including the CIO and general counsel. Those left don't have an impressive tenure. Court papers say 70 percent of the team has worked for Borders between 18 months and less than a year - right as the company went into freefall.

You could chalk this up to unfortunate timing, but remember: this is same staff that masterminded a number of lame initiatives. To boost holiday sales, they proposed installing 25 pop up shops in malls across the country --amid store closures and mass layoffs.There was the (ridiculous) shift from books to bears when Borders partnership with the equally beleaguered retailer Build-a-Bear Workshop (BBW) turned over varying degrees of store real estate formerly held by fiction, biography and the like to make-your-own plush creatures. And in the department of bad promotional schemes, Borders dropped the prices of its Kobo e-readers to compete with Kindle and Nook. These combined efforts resulted in a dismal third quarter in which sales plummeted to $471 million, a drop of 18 percent, right before the company ran for cover and filed for Chapter 11.
It's reassuring to think that Borders' executives are optimistic an incentive plan will provide the creative spark they need. After all, if this sinking ship goes down it will take a sizeable portion of the market along with it. Borders sales represented 8.5 percent of dollars spent on books in the third quarter, according to Bowker's PubTrack service. For comparison, Barnes & Noble (BKS) rang up 17.4 percent. And Borders hangs in third place on many publishers' customer lists, trailing behind B&N and Amazon (AMZN).

Bonuses are a tasty carrot for a team that got no such incentives in 2010. Borders didn't even allow pay raises for the last four years. But for a bookseller up to its eyeballs in debt with no clear strategy to pull out, it would be just as easy to push out a few more similar sales initiatives, rally the press (which would rev investors temporarily) and then claim they gave it the old college try when the balance sheet stays red.

As such, this move seems less about getting management fired up to create a sustainable business plan and more about a last ditch effort to line their pockets before Borders closes shop for good.

Image via Steven McKay CC2.0
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