Key Employee Retention Program (Financial Restructuring & Bankruptcy Glossary)
Summary
A postpetition retention plan that provides staying bonuses to certain senior key employees who continue working with the debtor during the bankruptcy case. A debtor will seek approval of a KERP to ensure that critical members of management remain with the debtor over the course of the bankruptcy proceeding. A KERP is often highly negotiated with the creditors' committee and is subject to approval by the bankruptcy court. Following highly publicized corruption by corporate officers of public companies, section 503(c) was enacted to place significant restrictions on KERPs, including: (i) prohibiting retention programs for insiders in chapter 11 reorganizations outside of a plan;(ii) placing limitations on severance payments to insiders; and (iii) establishing standards for benefits to non-insider employees.