JC Penney store at the Willowbrook Mall in Wayne, NJ.

J.C. Penney is proposing a payment program that it argues will help it retain a large group that it refers to in court filings as “key employees,” but which would exclude top executives. 

The retailer sought approval from the Texas bankruptcy court overseeing its proceedings for a “non-insider key employee retention program” that would amount to roughly $47.7 million and cover more than 4,200 employees — roughly 5 percent of its workforce, according to court filings on Thursday. 

Such so-called KERP programs are a common feature of corporate bankruptcies, and prone to scrutiny as retailers in bankruptcy are also often simultaneously devising plans to close stores and let go of employees. 

J.C. Penney, which has a total of roughly 85,000 employees, had disclosed last month that it would be laying off 1,000 employees across corporate, field management and international positions. In an SEC filing in May, the retailer also announced plans to close a total of around 242 stores over the next two years. The company has begun the process of closing a group of more than 150 stores. 

The retailer described the proposed program as a “continuation” of the kind of bonuses it normally offered employees in addition to their base pay. Without such incentive payments, the company risked losing employees with “institutional knowledge,” according to a declaration filed by Ryan Beger, a consulting director at Willis Towers Watson US LLC, which Penney’s had hired in April. 

Beger’s filing suggested the company believed that to be the case even during a pandemic that has led to record high unemployment rates — 14.7 percent in April, the highest recorded in the U.S., according to the U.S. Bureau of Labor Statistics — and snowballing retail bankruptcies.  

“Even in the current state of the economy, absent providing similar compensation programs that are customarily found in the competitive market and in the debtors’ historical practices, these employees may be more likely to leave debtors’ employ,” he wrote in the filing. 

A court hearing on the issue is scheduled for Aug. 24. 

It’s not clear which employee job categories would be covered under the KERP plan, or how the bonuses would be allocated among them, as the company is also seeking the court’s permission to file under seal the list of program participants. The list contains “commercial information” including “key employees’ job titles and levels and their proposed retention payments,” according to J.C. Penney’s filings.

Such “commercial information” should be protected because it would give competitors a window into its operations and information that could be used to poach talent, the retailer argued. 

“In particular, the debtors’ competitors could gain an unfair advantage if they knew the awards the debtors were providing employees at various ranks,” the retailer said in a filing. “The commercial information provided in the Non-Insider KERP Participant List could also enable the debtors’ competitors to lure the Non-Insider KERP Participants, whose services are critical to preserving and maximizing value of the debtors’ estates.” 

Under the proposed plan, about $24.2 million of the retention payments would be due during the Chapter 11 proceedings, according to one of filings by J.C. Penney. 

The program participants would not include any so-called corporate “insiders,” which the U.S. Securities and Exchange Commission describes as officers, directors and certain equity owners. The company did award its top executives some $9.9 million before its bankruptcy filing, according to an SEC filing in May. In particular, its chief executive officer Jill Soltau was granted a $4.5 million cash incentive award, while its chief financial officer, chief merchant and chief human resources officer were each granted $1 million. 

A representative for J.C. Penney declined to comment.

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