Less than a month before Pets.com Inc. announced that it was going out of business, the company changed its employment agreements with 10 top executives to make them eligible for a "retention bonus" of as much as $225,000 under certain circumstances -- including the liquidation that's now taking place.
The San Francisco-based online pet-supply retailer said earlier this month that it planned to shut down and try to sell off its Web site and other major assets after failing to find new investors or a buyer. That followed an Oct. 9 decision by the Pets.com board of directors to approve the new bonus arrangements, according to a third-quarter financial filing that was submitted to the Securities and Exchange Commission (SEC) on Nov. 16.
According to the filing, Pets.com Chairman and CEO Julia Wainwright and nine other executives will receive bonuses ranging from $75,000 to $225,000 if they stay until the liquidation of the firm is completed. The executives also would have been eligible for bonuses if they remained at Pets.com until next March or until the company found a new majority owner or received at least $10 million in new financing, whichever came sooner.
The bonus arrangements were detailed in letters dated Oct. 23 that were sent to each of the 10 executives and then included as part of the filing to the SEC.
The letters stated that the bonuses would "provide incentives for our key employees to continue in the service of the company notwithstanding the possibility of an acquisition or other similar transaction." The money would recognize past contributions as well as the executives' willingness to stay at Pets.com, the letters added.
Reached by phone at her home last week, Wainwright declined to discuss the matter. A Pets.com spokesman said all 10 executives are needed to complete the shutdown of the retailer's operations because of their different areas of expertise. Each has accepted the bonus offer and agreed to help close the company, he added.
In the filing, Pets.com said the success of its "wind-down depends in large part upon the company's ability to retain the services of certain of its current personnel or to attract qualified replacements for them." Retaining key employees "is particularly difficult under the company's current circumstances," the filing added.
Offers Aren't Unusual
Such bonus offers aren't unusual for firms that are in the kind of dire straits in which Pets.com finds itself, according to Jim Williamson, an analyst at International Data Corp. in Framingham, Mass.
But, he added, "I'm not sure I'm particularly comfortable with [the bonus arrangements] from an ethics standpoint."
"If you're a senior executive at a company that's going bankrupt, I think you have a fiduciary responsibility . . . to make a proper exit," Williamson said. "I don't think you need to necessarily be [attracted] by bonuses . . . in order to do what you should be doing anyway."
Kevin Noonan, an analyst at The Yankee Group in Boston, also said such retention bonuses aren't out of the ordinary. "[But] the unfortunate thing with this is that they appear to be doing it after the fact," when the shutdown of Pets.com was already in the cards, he said.
The timing of the deals creates "the feeling that they're not stay-on bonuses but a way to get some cash out to these people" to thank them for their previous work, Noonan said.
And claiming that all 10 executives are needed to wind down the company's operations may be "excessive," he added.
Due to get $75,000 bonuses are the vice presidents in charge of merchandising, distribution and customer service, among others.