The Blubber

Yellow paid bonuses totaling about $4.6 million to eight current and two former executives in the weeks before the company went bankrupt, per Bloomberg.

Just weeks before its closure and the subsequent dismissal of thousands of employees, Yellow Corp. disbursed substantial bonuses to its executives as a measure to retain them during the tumultuous disintegration of the trucking company, according to court documents.

Yellow awarded bonuses amounting to approximately $4.6 million to ten individuals, including eight current and two former executives, in the weeks leading up to the company's bankruptcy and liquidation proceedings, as disclosed in corporate filings in Delaware bankruptcy court. This figure exceeded what would have been disbursed had Yellow managed to avoid an abrupt bankruptcy filing, as per an individual familiar with the situation.

Of these bonuses, nearly $2 million, paid on July 14, had received approval from Yellow's board in June, at a time when the company was facing difficulties but had not yet contemplated bankruptcy, the source noted. Yellow's public dispute with a union representing a significant portion of its workforce escalated shortly after when a strike notice prompted the company's customers to seek services elsewhere.

The remaining bonuses, paid on July 31, became essential as Yellow strategized for a bankruptcy filing aimed at repaying creditors and winding down its operations. The company possessed significant assets, including a fleet of trailers and trucking terminals, all of which needed to be sold swiftly and at favorable prices. These assets had previously been valued at approximately $2.1 billion, but a rushed sale could potentially lead to significant reductions in their sale prices.

Retention bonuses, often used to incentivize employees to stay and assist in the restructuring of failing companies, are customary in major corporate reorganizations. However, it is less common to award such bonuses prior to a bankruptcy filing, especially when, as in Yellow's case, the company is destined for permanent closure.

These bonuses underscore a counterintuitive logic that frequently arises when corporations face financial collapse: the executives who oversee a company's descent into bankruptcy are often the individuals most equipped to help repay its debts, primarily due to their extensive institutional knowledge. While creditors, lower-level employees, and regulators often criticize retention bonuses as unjust or unnecessary, federal judges and restructuring experts consistently recognize their utility in assisting creditors in recovering more than they otherwise would in bankruptcy scenarios.

The bonuses distributed in July included a $1 million retention bonus for Yellow's Chief Restructuring Officer, Matthew Doheny, $1.08 million for Chief Operating Officer Darrel Harris, and $625,000 for Chief Executive Officer Darren Hawkins, as stated in a company court filing.

Yellow also reported retention bonuses of approximately $249,000 for its former Chief Commercial Officer and $23,000 for its former Senior Vice President of Human Resources. These bonuses were granted because, at the time of the bankruptcy filing, Yellow explored the possibility of selling its logistics business as a going concern rather than shutting it down. However, this idea did not gain support from key lenders, and the bonus payments were ultimately used to offset severance payments of approximately $306,000 and $296,000, respectively, the source explained.