Welded Construction – U.S. Trustee Objects to KEIP as More Retention Plan than Incentive Plan

November 13, 2018 – The U.S. Trustee assigned to the Welded Construction case filed an objection [Docket No. 196] to the Debtors’ Key Employee Incentive Plan (the “KEIP”)  [Docket Nos. 121 and 122]. The U.S. Trustee asserts, “The Motion seeks approval of what the Debtors term a Key Employee Incentive Program (“KEIP”) for insiders. While the Motion sets forth “metrics” for earning the KEIP payments, there is insufficient information to determine if such metrics render the KEIP a permissible incentive-based bonus plan, or an impermissible retention plan. The Debtors must set forth a sufficient factual record to justify the requested relief….The KEIP should not be approved because the KEIP Metrics appear to be consistent with the senior level employees’ existing duties under the customer agreements (i.e., achieving the Completion Date under the Columbia Gas Agreement, and the release of the Leach Xpress Project Settlement Payment from the Project Account), and the KEIP Metrics are not tied to any specific efforts by the senior level employees. To this end, the KEIP appears to be retentive, rather than incentivizing. Because the senior level employees are insiders, the KEIP runs afoul of section 503(c)(1) of the Bankruptcy Code….Here, the Debtors have not demonstrated a clear relationship between the KEIP and the results to be obtained because the KEIP Metrics are consistent with work that the insiders are already doing. The Debtors have also not provided information as to whether industry standards would support the KEIP.  Accordingly, the Debtors have failed to establish that the KEIP is justified under the facts and circumstances of this case under section 503(c)(3).”