The Rittenhouse Review

A Philadelphia Journal of Politics, Finance, Ethics, and Culture

Friday, May 10, 2002  

For Running Warnaco Into the Ground

Linda Wachner, the former chairman and chief executive officer of Warnaco Inc., and the very same woman who drove the firm into the ground, is asking the bankrupt company to pony up $25 million she claims is due under her employment agreement.

Wachner's claim is equal to about five years pay, according to a report by Paul Tharp in the May 9 edition of the New York Post. The claim has been classified in the bankruptcy proceedings as an administrative claim, a category normally reserved for regular back pay due employees and other high-priority claims.

Warnaco's creditors are balking at the claim, arguing that Wachner's compensation package is undeserved, an assertion one would think was quite obvious. "Given the nature of Wachner's claim, it is necessary to and appropriate to contrast Warnaco's unfortunately poor financial performance with Wachner's exorbitant compensation package," the creditors stated in a court filing this week.

Wachner earned about $90 million in salary, bonuses, and options between 1998 and 2000 as head of Warnaco and a subsidiary, Authentic Fitness Corp., the Post reports.

Moreover, the creditors assert that Wachner has improperly filed an administrative claim and suggest she line up with Warnaco's regular creditors. Under such a scenario, however, "it's unlikely Wachner would get any money because little would be left after banks and other creditors at the head of the line got theirs," according to experts contacted by the Post.

Friends of Linda

"Friends of Wachner say she's disappointed in the creditors because she tried to save the company with her own funds and bonuses and lost it all," writes Tharp. According to this argument, "Wachner was entitled to cash in $75. 6 million in options from her earlier bonuses, but instead of taking it in hard cash, she rolled over all the money -- and paid taxes on the gains -- into more Warnaco stock to help its image on Wall Street." [Ed.: Emphasis added.]

Now, it's safe to assume that Wachner's friends are repeating Wachner's position on the matter. Thus it is Wachner who is making the specious and spurious assertion that by putting her own money into Warnaco, she was "saving the company." Wachner knew -- or should have known -- better than anyone else that this was good money chasing after bad. Wachner must have known at the time that she was doing nothing other than postponing Warnaco's day of reckoning.

The transactions described, which were by equal measures acts of desperation and public relations ploys, turned against Wachner not by some bizarre twist of fate, but because Wachner was incompetent as a chief executive. Wachner made a bet and lost it, and now she would have the company's reimburse her for these reckless decisions. This is untenable, but wholly in keeping with Wachner's character.

But there is a second part to Wachner's plea, namely, that she invested the money to burnish Warnaco's image on Wall Street. This is laughable on its face: By the time Wachner started plowing funds into Warnaco (and remember, much of this money came from options -- free money from Warnaco -- that were becoming less valuable by the day), she already had lost the confidence of institutional investors who knew the damage she was doing to Warnaco.

Connecting the two arguments yields this: By personally investing money in Warnaco, Wachner was trying to save the company by improving its image on Wall Street. Only a CEO as short-sighted and with such limited capabilities as Wachner would be foolish enough to think that a better image for Warnaco would lead to its salvation. Investors put such notions to rest when the stock market peaked in the early months of 2000. The current bear market is pay-back for this type of hubris, and yet Wachner would have us join her desperate attempt to clutch at the distorted and destructive values of the end of the last century. We'll pass.

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