The Bankruptcy Code includes restrictions on employee compensation plans, including restrictions on a debtor's ability to make bonuses, severance and other payments. These restrictions limit payments to "insiders" to induce them to remain with the debtor, they limit the circumstance in which a debtor may make severance payments to insiders, and they prohibit payments to officers, managers, or consultants hired after the petition date that are outside of the debtor's ordinary course of business and not justified by the facts and circumstances of the case.

Retention Plans
Retention payments to insiders are generally prohibited unless the insider has a bona fide competing job offer, his services are essential to the business' survival, and the payments must meet certain other quantitative standards. Court decisions indicate that it may be extremely difficult to demonstrate that the insider's services are essential to the business' survival. As the criteria to justify a retention payment are difficult to meet,  a bonus plan tied to achievement instead of a retention plan may be more practical.

Severance Payments
Severance payments to insiders are prohibited unless the payments are a part of program that is generally applicable to all full-time employees and the amount of the payment is not greater than ten time the amount of the mean severance pay given to non-management employees during the calendar year.

Management Incentive Plans
Management incentive plans which are not "retention plans" may be approved by the court if found to be "justified by the facts and circumstances." An incentive plan would be performance based on benchmarks that are difficult to meet.