June 8, 2020 – The Debtors filed a motion seeking Court authority to implement a pair of performance-based incentive programs (“PBIPs”); one which will cover eight members of the Debtors’ senior leadership team (the "Insider PBIP") and have a maximum cost of $16.1mn ($5.3mn for the CEO) and one which will cover 44 members of the Debtors' intermediate-level management team and have a maximum cost of $9.1mn (the "Non-Insider PBIP") [Docket No. 498]. The proposed PBIPs sit alongside a proposed KERP that would cover 390 non-insider employees and provide an aggregate maximum award pool of $37.7mn [Docket No. 227].

With a combined possible payout of $63.0mn, the three plans are likely to draw a healthy degree of scrutiny from stakeholders wondering why that amount should go to the management of a company that needs to shave $10.0bn off of its balance sheet in Chapter 11.

The motion states, “The Debtors commenced these chapter 11 cases with the goal of implementing a comprehensive restructuring strategy that will right size their balance sheet. By this Motion, the Debtors seek to maintain proper incentives for senior and intermediate level management, which is critical to the efficient and effective completion of the work necessary to accomplish this goal.  

In light of the Debtors’ circumstances and their restructuring process, the Debtors and the Compensation Committee, in consultation with the Debtors’ advisors, decided to seek approval of the Debtors’ PBIP for the eight members of the Debtors’ senior leadership team (the ‘SLT’ or the ‘Insider PBIP Participants’, and such plan, the ‘Insider PBIP’) and forty-four non-executive employees at the senior vice-president (‘SVP’) and group vice-president (‘GVP’) levels. (collectively, the ‘Non-Insider PBIP Participants’, and such plan, the ‘Non-Insider PBIP,’ and the Non-Insider PBIP Participants together with the Insider PBIP Participants, the ‘PBIP Participants’).

The PBIP Participants were not included in the relief sought by the KERP Motion due to the structure of the award opportunities available to them, the Insider PBIP Participants’ status as insiders, and the Debtors’ interest in achieving approval for the KERP awards without delaying payments to the 390 KERP Participants. 

The eight Insider PBIP Participants are intimately involved in the formulation of the Debtors’ business plan and chapter 11 emergence strategy and are responsible for executing the Debtors’ strategic plans. The forty-four Non-Insider PBIP Participants perform important business functions that are critical to the Debtors’ day-to-day operations, but do not dictate the Debtors’ overall corporate policy. As a function of the large scale of the Debtors’ operations, and by extension the number of employees covered by the Debtors’ compensation programs, these employees represent an intermediate tier of the Debtors’ non-insider management between the SLT and the KERP Participants (as defined in the Debtors’ Motion for Entry of an Order Approving the Debtors’ Key Employee Retention Plan [Docket No. 227] (the 'KERP Motion')).

Under the PBIP, the PBIP Participants would earn awards based on the Company’s revenue, adjusted EBITDA, and net broadband adds. These metrics: (a) appropriately align the incentives of the PBIP Participants with overall Company performance, as adjusted EBITDA and revenue are important metrics of the Company’s health, while net broadband adds have specific importance to the Debtors given their operational overhaul from copper to fiber networks; and (b) are attainable but sufficiently difficult to achieve to incentivize performance. The Debtors have historically experienced challenges affecting revenue, including declines in video revenue streams.

Under the PBIP, the potential targeted annual payments (assuming satisfaction of all performance criteria at target levels) available to the Debtors’ President and Chief Executive Officer would be $4,045,000, while potential targeted annual payments (assuming satisfaction of all performance criteria at target levels) for any one Insider PBIP Participant other than the Debtors’ President and Chief Executive Officer range from approximately $680,000 to $1,525,000. 

Potential targeted annualized payments (assuming satisfaction of all performance criteria at target levels) range from $95,000 to $300,000 for any one Non-Insider PBIP Participant. The average (mean) payment for all PBIP Participants (assuming satisfaction of all performance criteria at target levels) is $374,429 on an annualized basis and $93,607 on a quarterly basis. The approximate aggregate cost of the PBIP would be $19,380,500 at target performance levels (with $12,390,000 attributable to the Insider PBIP Participants and $6,990,500 attributable to the Non-Insider PBIP Participants) or $25,194,500 at maximum performance levels (with $16,107,000 attributable to the Insider PBIP Participants and $9,087,500 attributable to the Non-Insider Participants).”

A summary of minimum, median, and maximum annualized PBIP awards:

A hearing on the motion is scheduled for June 29, 2020, with objections due by June 22, 2020.

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