Borders Compensation Adviser May Take Pay Cut

Mercer Inc., a leading consulting firm on executive pay and other human-resources issues, is under pressure to trim the compensation it will receive from Borders Group Inc., the national bookseller seeking to address its debts in bankruptcy.

The U.S. trustee, the arm of the Justice Department operating in bankruptcy court, said the more-than $100,000 bill Mercer submitted to the court for 10 weeks of work during Borders’s Chapter 11 case includes $16,496 in unnecessary fees. Mercer’s bill is just a fraction of the $7.1 million in fees charged by professionals in case between Borders’s Chapter 11 filing in February and the end of April.

The trustee, who is responsible for monitoring fees in the case, is asking the court to force Mercer to take a haircut on the bill.

Specifically, U.S. trustee Tracy Hope Davis said Mercer is trying to pass along to Borders the fees that it paid to its own attorneys. Davis said the Bankruptcy Code prevents payments to attorneys not approved by the court. She added that the advice of that counsel is for Mercer’s benefit and may or may not be in Borders best interest.

“Such legal services should be regarded simply as Mercer’s ‘overhead,’” Davis said in papers filed with the U.S. Bankruptcy Court in Wilmington, Del. “Accordingly, the requests for legal fees should not be paid.”

In a statement responding to the trustee’s filing, a Mercer spokesman said, “We believe that all fees and expenses sought by Mercer in connection with the services provided are reasonable and entirely appropriate.”

Mercer advised Borders on the $8.3 million bonus program the retailer sought to establish for its employees and executives.

Davis’s questioning of Mercer’s bill is her latest concern with professional fees charged in the case, which she has now challenged for the third time. Her previous protests have been resolved.

Borders says it’s rapidly moving toward a sale of its business, but it has yet to file a formal plan with the court.

“Consequently, the ultimate benefit to the estates for the services rendered by the professionals simply cannot be assessed at this time,” Davis said in court papers.

She is asking that all firms being paid by Borders hold back 20% of their bills until the case’s outcome is more certain.