When Congress Says 'PIP Your KERP': Performance Incentive Plans, Key Employee Retention Plans and, Chapter 11 Bankruptcy Resolution

53 Pages Posted: 18 Feb 2009

See all articles by Barry E. Adler

Barry E. Adler

New York University School of Law

Vedran Capkun

HEC Paris - Accounting and Management Control Department

Evren Ors

HEC Paris - Finance Department

Date Written: February 15, 2009

Abstract

In the U.S., the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA) imposed severe restrictions on the adoption of Key Employee Retention Plans (KERPs) and favored the Performance Incentive Plans (PIPs) in Chapter 11. Examining pre-BAPCPA data, we find that KERP contracts lead to longer bankruptcy resolutions but nevertheless improve operating performance, whereas PIP contracts lead to shorter bankruptcies and even higher operating performance. An unintended consequence of the new Act appears to be a reduction in the efficiency of Chapter 11 resolutions through limitation of the type of contracts that creditors can offer to key employees of bankrupt firms.

Suggested Citation

Adler, Barry E. and Capkun, Vedran and Ors, Evren, When Congress Says 'PIP Your KERP': Performance Incentive Plans, Key Employee Retention Plans and, Chapter 11 Bankruptcy Resolution (February 15, 2009). Available at SSRN: https://ssrn.com/abstract=1343851 or http://dx.doi.org/10.2139/ssrn.1343851

Barry E. Adler

New York University School of Law ( email )

40 Washington Square South
New York, NY 10012-1099
United States
212-998-6660 (Phone)
212-995-4341 (Fax)

Vedran Capkun

HEC Paris - Accounting and Management Control Department ( email )

Jouy-en-Josas Cedex
France

Evren Ors (Contact Author)

HEC Paris - Finance Department ( email )

1 rue de la Liberation
Jouy-en-Josas Cedex, 78351
France
+33 1 3967 7123 (Phone)
+33 1 3967 7085 (Fax)

HOME PAGE: http://www.hec.fr/ors

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