Days before filing for bankruptcy on Monday, Spirit Airlines' board approved a one-time cash retention bonus totaling $5.4 million for five named executives. According to a Securities and Exchange Commission (SEC) filing, the agreement, signed on November 12, stipulates that executives must repay the bonus if they are no longer employed by Spirit in "good standing" one year after the effective date.

The filing shows that the highest retention bonus went to President and CEO Edward Christie III at $3.8 million; Chief Operating Officer John Bendoraitis received $850,000; Chief Information Officer Rocky Wiggins will receive $300,000. Chief Financial Officer Frederick Cromer will receive $175,000, the lowest among the five.

Josh Crist, co-managing partner of executive search firm Crist Kolder, said retention bonuses are a common tool for distressed companies to retain executives and management when filing for bankruptcy, especially when the company plans to reorganize and emerge as a going concern. "You're trying to get people through the bankruptcy," Crist said in an interview, noting the significant gap between CEO and CFO bonuses but declining to comment on possible reasons.

The Florida-based budget airline headquartered in Dania Beach—known for low fares, minimalist service, and sometimes painful early-morning flights—filed for Chapter 11 bankruptcy protection on Monday, moving toward restructuring. This came after other efforts to reduce costs and counter industry headwinds, including a merger, failed, as CFO Dive previously reported.

In a statement filing, Cromer said he expects a "swift Chapter 11 process," including a restructuring plan that has been endorsed by "consenting stakeholders" holding approximately 80% of the debt to be reorganized. As of the filing date, the airline had $3.6 billion in total outstanding debt.

Crist said retention agreements like the one Spirit offered its executives are not uncommon, especially for bankrupt companies that have secured creditor support. He also noted that a second payment described in the filing as a 2024 short-term cash incentive plan bonus could be a way to pay or guarantee executives' 2024 bonuses even in bankruptcy.

Christopher Ward, co-chair of Polsinelli law firm's bankruptcy and restructuring practice and president of the American Bankruptcy Institute, also said it is routine for companies to develop management incentive plans before filing for bankruptcy. However, under bankruptcy law, plans that incentivize employees or executives to stay with and assist the debtor during bankruptcy must meet specific requirements, depending on the type of plan.

Ward noted that whether called a management incentive plan, key employee incentive plan, or key employee retention plan (the latter more commonly used for executives and CFOs), such plans are typically market-tested against other comparable companies undergoing Chapter 11 proceedings. "Most experienced advisors understand that incentive plans must be market-tested and reasonable to pass scrutiny," Ward said.

As part of the plan, each named executive received earned cash bonuses under the company's 2024 short-term incentive plan, covering the first and second halves of 2024, unless the executive "ceases to be employed by Spirit in good standing prior to the earlier of January 31, 2025, and 60 days following a 'change in control'." Additionally, the filing states that any unpaid time-based or performance-based long-term cash incentive awards for named executives, along with any related payments other than the short-term incentive plan payments mentioned in yesterday's filing, are "forfeited in full."

Christie will receive a 2024 short-term incentive plan bonus of $419,866 in addition to the $3.8 million retention bonus; Cromer will receive $277,508 in short-term incentive plan bonuses in addition to his $175,000 retention bonus.

According to an April proxy filing, Christie's total compensation last year was $6.6 million, including a salary of $745,833. Securities filings from July show that when the company appointed Cromer, now 60, in July, his compensation included an annual base salary of $610,000, a target bonus equal to 100% of annual base salary, a $200,000 signing bonus, and an initial long-term incentive award valued at $1 million on the grant date.

Spirit did not respond to requests for comment.