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It's not like hired gun Robert S. Miller needed another $8.3 million in cash after he spent more than two years steering Delphi through the nation’s largest-ever industrial bankruptcy.

It's just as well. U.S. bankruptcy judge Robert Drain put the kibosh on Miller's parting gift and wouldn’t okay the company's reorganization unless it dramatically slashed an $87 million grab bag for more than 500 executives at the teetering auto-parts giant.

Miller—whose annual salary was $750,000, a deal he gave up in 2007 in exchange for a buck a year—will get a prorated payday along with other Delphi executives, but the company's "emergence" compensation pool shrunk to $16.5 million. This is bankruptcy, after all.

For executives at the helms of sinking ships and others seeing their firms beset by a stumbling economy, it's a lesson that they can't dish out the thank-yous like caviar when they should be scooping Spam.

"The big payoff at the end of the case was always viewed as contingent. What’s changed now is, one judge said 'No,'"David W. Dykhouse, an attorney with Patterson Belknap Webb & Tyler, noted.

This context is not lost on the Chapter 11 Club—the lawyers, accountants, and army of consultants known as "the restructuring community."

Drain is a high-profile jurist in the world of big business who presided over the Refco bankruptcy. In the Delphi case, he's carved out a reputation of looking out for shareholders, creditors, and tens of thousands of hourly workers, most of whom were bought out for comparative chump change. Attorneys representing these interests will be citing Drain's words for years to come."The problem until this case has been judicial timidity," another source said. "Judges didn't want to stand up to debtors or powerful law firms, and he did. It's not so much required for other judges to follow him. He put it out there as a model to emulate if you decide to be bold yourself."

Delphi's emergence-equity awards—C.E.O. Rodney O’Neal's is $10.5 million—were not subject to Drain's revision. The company's 10Ks rich in details about compensation, from retirement and death benefits to incentive plans that were approved by the court. But the cash-emergence ruling stands apart.

Following a directive from the judge, Delphi's compensation committee cut O’Neal's piece of the cash pie to $1 million, from the $5.3 million he was expecting. All told, Delphi's top five executives—the only ones for whom the Securities and Exchange Commission requires disclosure—will pocket $2.1 million combined.

The 2005 changes in the bankruptcy code put limits on rewards such as key-employee-retention programs, or KERPs. But Drain’s opinion is much broader, a source familiar with Delphi pointed out.

It's applicable to any stage at any point in the proceedings—"beyond the normal course of business." That Drain discussed the opinion in Delta Airlines’ bankruptcy, filed after the new law went into effect, supports this view, the source added.

"A company has to establish if it’s going to put in an out-of-the-normal-course-of-business bonus, and they have to support it with evidence that it's within the market's norms," he explained. "KERPs have acquired an inappropriate aura to them. The idea of giving money to every executive—Delphi's requests were really quite audacious."

So how do they do it, these compensation gurus? Delphi’s expert witnesses were, in truth, Delphi employees, from the compensation committee chief to consultants on the payroll. The model, one of these experts admitted, was Enron, not another auto-parts maker or even a company within the automotive world. Indeed, after 20 hours of testimony—including some sharp grilling by Drain—the featured consultant admitted his model was significantly flawed.

Granted, it's a dark place in which the U.S. auto-parts industry resides. Delphi may be the biggest, but it's not alone. Its compadres have all tasted the bankruptcy soup: Federated Mogul (five years and counting), Dana Corp. (completed), Collins & Aikman (liquidated), Tower Automotive (just passed GO thanks to private equity).

Sagging economies are fertile breeding grounds for bankruptcies, and the professionals agree that there will be plenty of business for the restructuring pros, even with sources of financing as elusive as the Mega Ball. Don't expect the restructuring community to change its basic strategies.

And Miller? He’ll survive; his book The Turnaround Kid: What I Learned Rescuing America's Most Troubled Companies is due out in April.

"For him, the money has a nonmonetary value. I don’t think he’s working for the money. He's working for the trophy," one expert said. "It's more the restructuring community thinking, 'How are we going to keep guys like this hungry?'"

CORRECTION: Portfolio.com originally reported that bankruptcy proceedings for Dana Corp. were still in progress, when in fact they were completed February 1. Emerging from Chapter 11, the company is now Dana Holding Corp. The company's new board of directors tapped John Devine as executive chairman and acting chief executive, a news release said.



Mr. Carey should see this.....


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