For a company on the verge of bankruptcy and as riddled in debt as American Apparel, it's surprising to think that its CEO Dov Charney would be a candidate for any kind of year-end bonus, let alone one totaling $1.1 million. The company's recent 2009 proxy filings with the SEC outlined the embattled CEO's total compensation last year, revealing that Charney received a grand sum of $1.9 million, more than half of which was an add-on to his regular salary.
Though Charney's always led his company very much according to his own—albeit not always conventional—terms, how is it actually possible in this particular economic climate that a CEO could achieve such a payout for doing such a questionable job?
Apparently Charney’s bonuses are dependent on three factors: same-store sales, inventory levels, and earnings. While same-store sales were down 11.4 percent during that recorded period, Charney actually has the executive power to control the other two factors: "he can order new inventory made or production halted anytime he wants; and manufacturing expenses, another major factor in AA’s earnings margin, would also go up or down as a result," BNET reports.
Furthermore, Charney's been loaning the company some of his own cash at interest rates higher than those of most banks. It's entirely legal, but certainly likely to put him under further scrutiny from some of American Apparel's other creditors, including Lion Capital, which has kept the company out of bankruptcy and now holds three of its 12 director's' seats, in addition to installing a new company president.
Before any more red flags are waived, perhaps the best way for Charney to manage his massive bonus would be to put it right back into the company—by buying American Apparel threads for all his friends these upcoming holidays.