DETROIT -- Despite more than a decade of hemorrhaging cash and a controversial 16-month bankruptcy reorganization, Visteon Corp. last year paid CEO Donald Stebbins more than any other public company CEO in Michigan, including the Detroit 3 automakers.
Stebbins' compensation package totaled $26.9 million -- up from $3.3 million in 2009 -- making him more highly paid than Ford Motor Co. CEO Alan Mulally at $26.5 million and Dow Chemical Co. CEO Andrew Liveris at $21.3 million.
General Motors CEO Daniel Akerson, whose pay is regulated by the federal government as part of the automaker's 2009 taxpayer bailout, received a $9 million annual compensation package when he took the job.
Chrysler Group CEO Sergio Marchionne, who is also CEO of Fiat S.p.A., collected $2.87 million in stock-based compensation last year, but not a salary. Italy's Fiat, which controls Chrysler as part of the government's other major auto industry reorganization in 2009, paid Marchionne $4.8 million last year.
Stebbins' compensation is fueled by a $21.2 million stock award, the result of how Visteon's bankruptcy was used to provide a financial windfall to its executive team while scrubbing $2.1 billion in debt from its balance sheet.
The supplier and its bondholders drafted a plan that provided nearly 2 million new shares to Stebbins, his executive team and bondholders but left shareholders in the lurch, said a source from a former shareholder group who spoke on the condition of anon-ymity.
Jim Fisher, director of corporate communications for Visteon, said the executive team's compensation was approved by its creditors and shareholders as part of its reorganization.
A dozen other analysts, financial advisers, competitors and the U.S. trustee overseeing the bankruptcy proceedings declined to comment.
As part of Visteon's reorganization plan, the executive team was issued 1.7 million shares of new stock in the company, and bondholders were allowed to take an ownership stake with 45 million shares. That's while the supplier's shareholders ownership stake was reduced to 2.5 percent.
Unsecured shareholders and creditors battled the plan in U.S. bankruptcy court in Delaware, arguing that the executive team was purposely undervaluing the company to exit bankruptcy with it in the hands of its bondholders -- and to muscle out its shareholders.
"There is a practical incentive for creditors to argue for a low valuation of the company in order to receive securities that will actually provide them a windfall well above payment in full of their claims, all at the expense of existing equity," said a letter filed by Martin Bienenstock, a lawyer for New York-based Dewey & LeBoeuf LLP representing an ad-hoc committee of shareholders in the proceedings.
Shareholders and bondholders of Visteon were both fighting for the right to sponsor the company's reorganization plan throughout the court proceedings, as both groups wanted to issue new stock to recoup costs and help the company pay down its debt.
In the end, the bondholder plan passed and the more than 40 bondholders took a more than 88 percent ownership stake by buying the 45 million shares at $27.78 per share, or $1.25 billion.
Visteon also rejected a $1.25 billion bid during bankruptcy from Milwaukee-based competitor Johnson Controls Inc. for its seating and interiors business.
JCI could not be reached for comment.
"A cynic would say that had JCI bought the (seatings and interiors) business out of bankruptcy, then management wouldn't have gotten their juicy post-reorganization stock package," the source said.
The bondholders, including Deutsche Bank Securities Inc., Goldman, Sachs & Co., and hedge fund manager Stark Investments, not only recouped their costs in the reorganization, but have profited. The bondholders were also issued an additional 2.5 million shares for free.
At current trading prices, bondholders' shares are worth more than $3 billion, or a more than $1.9 billion profit, on their original $862 million worth of bonds. That's a 225 percent return.
Said the source: "The bondholders deserved to be paid back in full, of course, before shareholders got anything, but the shareholders should have gotten everything beyond that."
Instead, critics say, top management ended up with stock awards incongruous with the company's performance. The executive team's shares are now worth $114 million.
"The award of stock options to management contemporaneously with the Chapter 11 plan's confirmation provided a perverse motivation for management to undervalue the company," Bienenstock said in an email to Crain's.
"As it turned out, creditors received value of approximately twice their claims while shareholders were needlessly deprived of hundreds of millions of dollars. Hopefully, the bankruptcy system will take note and will impose corporate governance to protect shareholders in the future."
Through the bankruptcy process, Visteon's old shares were canceled, and, as part of the plan, old shareholders were issued only 1 million new shares. That's 2.5 percent of the company, plus warrants to buy 1.6 million in new shares. In the end, shareholders received about 61 cents per share.
Visteon shares opened at $49 in October. On Friday, the stock closed at $66.90 a share.