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After fire, Philadelphia refinery paid executives $4,591,500 in bonuses while hundreds were laid off

Andrew Maykuth, The Philadelphia Inquirer on

Published in Business News

PHILADELPHIA -- Philadelphia Energy Solutions paid out about $4.6 million in retention bonuses to eight key executives after a devastating June fire closed the giant Schuylkill River refinery complex, but before the company declared bankruptcy, court records show.

Most of the payments were made on July 5, while PES was in the process of closing the East Coast's largest refinery, according to a filing with the U.S. Bankruptcy Court in Delaware. At the time, the refinery had announced plans to permanently shut the fuel complex and lay off most of its 1,100 employees without severance pay or health insurance coverage.

"It's repulsive that they did that," said Ryan O'Callaghan, a spokesperson for Steelworkers Local 10-1, which represents refinery workers. "While they're telling everybody else they're poor, bankrupt, had nothing for severance and canceled the medical benefits plan, ... they stuffed their own pockets."

The payments were disclosed in financial documents filed Friday with the court. Representatives of the refinery and its lawyer could not be reached for comment on Tuesday. The bonuses were first reported by Reuters.

Retention bonuses are sometimes awarded to incentivize employees to remain at a troubled company during bankruptcy proceedings, when it is difficult to recruit new talent to work at a company that may be sold, or closed.

But paying retention bonuses before a bankruptcy filing is a "little trickier," said Jonathan Lipson, a bankruptcy expert at Temple University's Beasley School of Law. Changes to the federal bankruptcy code in 2005 encourage companies to submit key employee retention plans to the court for approval, and to tie bonuses to performances that can be demonstrated when the company emerges from bankruptcy.

 

"Key employee retention bonuses are not that uncommon in bankruptcy, but it is uncommon to pay them before bankruptcy knowing that you're going to go into bankruptcy," Lipson said. Such bonuses might be challenged by a committee of unsecured creditors, or by a bankruptcy trustee if one is appointed.

The retention bonuses paid by PES were not included in a formal plan submitted to the court, but listed without comment in a 204-page financial report submitted to the court.

Chief executive officer Mark Smith received a $1.545 million retention bonus, according to the filing. Smith, who previously worked as president of refining and marketing at Western Refining Inc., was hired only last August.

General counsel John McShane received $875,500, chief financial officer Rachel Celiberti got $721,000, and deputy general counsel Anthony Lagreca received $450,000. Refinery manager Daniel Statile, who was hired in March, was paid $325,000.

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