"It's not the case that every dollar that goes into an executive's pocket is a dollar out of a (worker's) pocket," Judge Robert Drain said in ruling that the payments clearly are a part of the salary plan and not a "handout."
Delphi, which filed for bankruptcy protection in October 2005, remains in talks with its unions over proposed wage and benefit cuts and other issues necessary to complete its reorganization.
Some 440 executives could receive payments ranging from a total $20.1 million if Delphi met operating targets to a maximum of $37.4 million under the plan Drain approved in a hearing at the U.S. Bankruptcy Court for the Southern District of New York.
It is "necessary (for the) executive team to be compensated at least somewhat comfortably," said Drain, who approved Delphi's requests for similar payments in 2006.
Union lawyers argued the incentive plan was a "distraction" or "impediment" to the unions' negotiations with Delphi.
A lawyer representing the United Steelworkers union, Lowell Peterson, reported a high "frustration level" among the rank and file that negotiations have not advanced in six months.
Judge Drain said he "strongly urged" Delphi and the unions to "put every effort" into negotiations.
Delphi lawyer Jack Butler declined to comment on the status of union negotiations.
"I think the judge has an expectation that the principal stakeholders in this case will be actively negotiating 24/7 to try to resolve the barriers to emergence from Chapter 11," Butler said. "That message was heard loud and clear."
Delphi has delayed consideration of a key employee compensation plan, which would include payments to executives for completing the reorganization, until later in the process.
Troy, Mich.-based Delphi plans to cut about four-fifths of its U.S. hourly workers and thousands of salaried workers worldwide to restructure its operations. It also plans to exit several businesses.
Private equity firms have proposed a $3.4 billion equity investment to support Delphi's emergence from bankruptcy, contingent on the company reaching agreements with its unions and former parent General Motors.