Hawaiian Telcom bonuses are part of pay routine


POSTED: Tuesday, March 24, 2009

Americans are rightly outraged by the large bonus payments to executives of American International Group's financial services division, but criticism of bonuses to employees of Hawaiian Telcom Communications Inc., which filed for bankruptcy in December, is misdirected. The Hawaiian Telcom payments are an integral part of the company's pay system.

Gov. Linda Lingle said Eric Yeaman, Hawaiian Telcom's chief executive, “;could have and should have put an immediate stop to this outrageous action.”; However, doing so would have violated the company's contract with the electrical workers union that provides a “;team performance award”; — performance bonuses — to employees.

After receiving a bailout of $173 billion in tax dollars, AIG paid “;retention”; bonuses of $163 million to 418 employees as they “;wind down”; their employment at AIG's financial services division, which brought down the company. The debacle does not involve AIG's insurance division, as Robin K. Campaniano, chief executive of AIG Hawaii, assured customers in letters last week.

Federal law forbids retention bonuses by companies in bankruptcy proceedings, but “;performance”; bonuses are allowed. At Hawaiian Telcom the size of the bonuses is determined by how well the company performed in comparison with its goal at the beginning of the year, based on adjusted earnings and cash flow.

Hawaiian Telcom, which has received no federal money, is asking for court permission to follow through with $6 million, reduced from $7.9 million, in performance bonuses. In a court pleading, it states that all of the company's 1,418 union and nonunion employees, including its “;senior management team,”; are eligible for performance bonuses. The only employees not eligible are the 150 salespeople, who are paid commissions in addition to their wages.

Walter Dods, the company's chairman, said employees accepted a 10 percent pay cut about three years ago with the understanding they would get some of it back if they met the performance target. He said 93 percent of the bonuses go to union employees and nonsenior management.

The company's six senior vice presidents have agreed to accept only 50 percent of their bonuses, and Yeaman has agreed to forgo the entire $609,000 bonus he was due. Lingle maintained that showed only that Yeaman “;clearly recognized bonuses were wrong and counterproductive.”; More likely, he was cognizant of public outrage caused by AIG about any large bonuses because of misunderstanding.

In the court papers, Hawaiian Telcom said the bonuses are intended to fairly compensate employees and attract new ones. Such bonuses are provided “;in the ordinary source of business”; and are “;consistent with industry practice,”; it added.

“;This is routine performance pay, not five rich cats getting $6 million,”; Dods said. “;We feel strongly that this is the right thing to do.”;