Essar Steel Algoma seeks millions in bonuses for 23 key executives

Essar Steel Algoma is seeking $3.5 million in retention bonuses and incentives for 23 executives it says are critical to see it through its current restructuring under the Companies' Creditors Arrangement Act.

The company has served notice that it will ask a Toronto judge later this week to seek approval of the bonuses as part of a KERP (key employee retention plan).

It wants the court to keep the names of the management and operational executives secret, sealed in a confidential court file.

"All of the KERP participants are... experienced employees who have played central roles in the applicants' operations and/or restructuring initiatives taken to date and will play critical roles in the steps taken in the future," the steelmaker's lawyers argue in a notice of motion.

"The KERP is necessary to ensure the KERP participants continue their employment."

If the bonuses are not paid, there's a significant risk that the key executives will leave, the company says.

"If these individuals were to depart Algoma, it would be necessary to replace them," says ESA Chief Financial Officer Rajat Marwah in a sworn affidavit.

"Finding qualified replacements would be disruptive and very difficult, and in light of the applicants' CCAA proceedings and their financial position, expensive," Marwah; affidavit says. "Their institutional knowledge and experience cannot be replaced."

A draft of a confidential letter to be sent by the company to the 23 executives advises them that:

You must not have disclosed these arrangements to any person other than your personal representatives and legal advisors (other than any disclosure required by law); and
Prior to the time that the payment becomes payable, you cannot have: a. resigned; b. been terminated with cause; or c. failed to perform your duties and responsibilities diligently, faithfully and honestly in the opinion of your direct supervisor and the special committee of the board.
We truly appreciate your continued hard work and importance to Algoma as [position], particularly at this time.

The 23 employees have been divided into four groups, each receiving 25, 50, 75 or 100 percent of their annual salaries.

The company proposes making cash retention payments to the 23 employees "upon the earliest of the following events":

Implementation of a plan of compromise or arrangement sanctioned by the court
Completion of a sale (or liquidation) of all or substantially all of the assets and operations of Algoma approved by the court;
termination of a KERP participant's employment by Algoma without cause; and
December 31, 2016.

Steelworkers Locals 2724 and 2251 and Essar Steel Algoma retirees have served notice that they will oppose the bonuses and the sealing of the list of proposed recipients.

Lawyers from Local 2724 will argue that, because the list is secret, it can't determine whether the employees are key and the amounts payable are appropriate.

Legal representatives for Local 2251 say the union will also be opposing both the KERP and the bonuses.

"The employee and retiree representatives also object to the order sealing the KERP participant listing," the union lawyers say. "The CCAA process should be open and transparent to the greatest extent possible."

Essar Steel Algoma noteholders are also concerned about the proposed bonuses.

Restructurings in which retention bonuses were paid to key employees include Nortel Networks Corp., Target Canada Co., US Steel Canada Inc. and Grant Forest Products Inc.

Previous SooToday coverage of this story

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'We expect to come out of this a much stronger company' - Kalyan Ghosh

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Essar Steel Algoma enters creditor protection, says report

Province hasn't given promised money to Essar Steel Algoma. Yet

Local businesses left holding millions in dicey Essar debt

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