Former Arcandor CEO leaves with hefty pay guarantee

Karl-Gerhard Eick resigned as Arcandor's chief executive on Tuesday as official insolvency proceedings opened at a bankruptcy court in the German city of Essen.

Despite serving just six months of his five-year contract, Eick is expected to receive salary and bonus payments worth up to 15 million euros (US$21 million).

With less than one month to go before federal elections in Germany, news of Eick's pay guarantee sparked a public backlash among politicians and labor unions.

"I cannot fathom this at all," German Chancellor Angela Merkel said. "We must contemplate whether or not something can be done."

"This is totally wrong," said Hans Michelbach, an expert on small and medium-sized businesses with the Bavarian Christian Social Union (CSU). "This turns the principle of performance rewards on its head."

"It's outrageous that someone, after just a few months, can go home with 15 million euros when insolvency proceedings are underway," said Guido Westerwelle, leader of Germany's liberal Free Democratic Party.

2.5 million euros a month?

Recruited from Deutsche Telekom to lead Arcandor only six months ago, former CEO Eick is guaranteed a sum of 10 million euros with another possible 5 million in bonuses paid to him by one of the company's main shareholders, Sal. Oppenheim.

In an interview with the German magazine Der Spiegel, Eick defended his bonus by saying: "The amount is not paid by Arcandor, but by major shareholder Sal. Oppenheim."

His supporters said Eick would not have accepted the position at Arcandor if not for the income guarantee, as he already had a contract with Deutsche Telekom earning a comparable salary.

"I am not greedy, but I am not stupid, either," Eick told reporters at a press conference in Dusseldorf.

Arcandor said in a statement that Eick is planning to donate one-third of his pay - as much as 5 million euros - to help employees affected by the bankruptcy.

It is still unclear how many jobs will be cut, though it's estimated that some 40,000 positions are at risk. Gerd Koslowski, a company spokesman says the company's main priority "is to save as many jobs as possible."

Restructuring the wreckage

Arcandor officially filed for insolvency on June 9. Now a court-appointed administrator, Klaus Hubert Goerg, has the difficult task of restructuring the company.

After failing to find a single investor to take over Arcandor as a whole, Goerg is seeking separate buyers for each of the group's divisions, including its Karstadt chain of department stores, its Quelle mail-order unit, and its Primondo service unit.

Although the company was already on shaky ground when Eick took-over, analysts say he and the bank underestimated the extent of the retailer's dire financial position. Arcandor came close to declaring bankruptcy in 2004 and had been fighting an uphill battle ever since.

Eick acknowledged that the company could not continue operating in the same fashion; but he ran into further trouble when Arcandor's two primary investors - Sal. Oppenheim and the Schickedanz family – said they would not put up any more cash to save the company.

Angela Merkel's government made the controversial decision of turning down Arcandor's request for state aid on the basis that the company was already performing poorly before the global economic downturn.

vj/dpa/AP
Editor: Sam Edmonds