24 Hour Fitness: U.S. Trustee raises issues with employee bonus plans

By Caroline Salls

Pittsburgh, Sept. 9 – The U.S. Trustee overseeing 24 Hour Fitness Worldwide, Inc.’s Chapter 11 case objected to the company’s motion to implement key employee incentive and retention plans, according to a Tuesday filing with the U.S. Bankruptcy Court for the District of Delaware.

Region 3 U.S. Trustee Andrew R. Vara said in his objection that “the KEIP, although styled as an incentive bonus program, appears to be a retention bonus program.”

In addition, Vara said 24 Hour Fitness fails to provide enough information in the motion to prove that the metrics for 40% of the KEIP payments can be classified as incentives, and the actual metrics for the remaining 60% of the KEIP payments are not even revealed.

“The KEIP payments are also excessive and unreasonable,” Vara said, adding that comparable cases for the program’s target level are not disclosed, nor is the analysis provided for the program’s “reach” level.

Vara said the KERP motion does not disclose any of the participants and acknowledges that some of the participants have officer and director ties, but concludes that “the presumption that they are insiders should be overcome with only generic information provided and without specific disclosures for each participant.”

While the Bankruptcy Code does not prohibit retention bonuses to insiders, Vara said it does set requirements as to when those bonuses can be paid, including that the bonuses should not exceed more than 10 times the average bonus received by non-management employees.

A hearing is scheduled for Sept. 15.

24 Hour Fitness is a San Ramon, Calif.-based fitness-club operator. The company filed bankruptcy on June 15 under Chapter 11 case number 20-11558.

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.