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Alpha Natural Resources is seeking permission to pay senior executives bonuses of up to $14.8 million, court filings show, even as the bankrupt coal company moves to cut retiree health benefits. 

The bonuses for 17 executives are contingent upon Alpha meeting a series of performance benchmarks, including cost reductions and improvement in the company's cash position. The proposal is subject to the approval of a federal bankruptcy judge.

In court filings, Alpha said the awards were needed to address a drop in executive pay, compensate management for its efforts during the bankruptcy process and provide an incentive for a successful restructuring. 

The industry's struggles with a weak market and a growing regulatory burden have only added to the complexity of executives' task, Alpha said. 

"In light of these challenges, the debtors' senior management is particularly critical to the completion of all business functions required by the chapter 11 process," the company wrote in a filing to the U.S. Bankruptcy Court for the Eastern District of Virginia. "The debtor's senior management has worked tirelessly both prior to and since the petition date to maximize the value of these estates for the benefit of their creditors."

The move to pay executive bonuses comes at a time when Alpha is seeking to cut retiree benefits for 4,580 former non-union miners and their spouses. The plan is expected to save the company $3 million annually and eliminate a $125 million liability from Alpha's balance sheet.

A group of former Alpha executives has led a legal effort to block the proposal. Former Alpha CEO Michael Quillen has said the plan does not represent "the values the company was built on."

While Quillen said he understood the challenges Alpha faces, he added, "We made a pledge to our employees to provide a safe place to work and benefits that would extend beyond their years of employment. It’s imperative for the company to honor that pledge."

Alpha's plan would have cut benefits to retirees on New Year's Eve, but its motion seeking approval of the proposal has been delayed and will now be heard on Jan. 21. 

Alpha is the operator of the Belle Ayr and Eagle Butte mines near Gillette. The two mines employed a total of around 575 as of the third quarter of 2015, according to U.S. Mine Safety and Health Administration statistics. 

How many Wyoming retirees would lose their benefits under the plan is unclear. The company has not disclosed how many retired Cowboy State miners would be affected. But the impacts are potentially widespread. Neither of Alpha's mines are unionized. 

Richard Evenson, 61, worked 37 years at Belle Ayr and Eagle Butte before retiring three years ago. He estimated it will cost $1,700 a month, or $24,000 annually, to buy a health care plan with equivalent benefits. 

While he wants to see Alpha succeed, Evenson said the $3 million in annual health care payments seems small next to the bonuses being proposed for the company's executive team. 

Many miners based their decision of when to retire on the assumption Alpha would pay for their health care, he said. Evenson will not be eligible for Medicare until March 2019. 

"We think it isn’t fair on what was indicated would be our benefits with the health insurance," said Evenson, who has joined the lawsuit opposing the benefit cuts. 

Alpha's last profitable year was 2010. Its earnings have since been dragged down by a deterioration of international coal markets and the company's 2011 purchase of Massey Energy Co. for $7.1 billion. When Alpha filed for bankruptcy in early August, it had nearly $4 billion in debt. 

The coal company has nevertheless awarded $5.6 million in bonuses to four executives since the start of 2014 in the form of so-called "retention agreements." The deals are contingent on executives remaining with the company, with a payment made each time a manager meets an employment milestone.

For instance, Alpha CEO Kevin Crutchfield was awarded a $2 million retention agreement in February of 2014. The deal called for him to receive $500,000 immediately, another $500,000 in February of 2015 and $1 million in August of 2016. 

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Those awards were in addition to the four executives' base salary, stock options and other financial incentives.

The $500,000 payment made to Crutchfield in 2014 brought his total compensation for the year to almost $7.8 million, according to financial filings. 

Former president Paul Vining similarly made $4.5 million after receiving a bonus of $500,000, chief financial officer Philip Cavatoni took home $1.9 million with his bonus of $250,000 and executive vice president Brian Sullivan earned $1.6 million after he received a bonus of $200,000.

The majority of the $5.6 million in retention agreement bonuses was unpaid due to departures and the company's bankruptcy filing. Crutchfield and Cavatoni will not receive the $1.6 million they were due because of the chapter 11 filing. Sullivan and Vining left Alpha earlier this year, forfeiting a total of $2.3 million. 

The bonuses called for in the company's bankruptcy proceedings are aimed in part to compensate for the loss of the retention agreements and to prevent further departures among Alpha's senior managers. 

Alpha declined to comment publicly on its case. But in court filings the company noted its precarious financial position and the wider challenges facing the coal industry "have proven too much" for former executives who left the firm. 

Total compensation for members of the executive team has fallen 57 percent in 2015 as a result of its bankruptcy filing, the company noted. Compensation for the board of directors has been reduced by 47 percent while the number of seats on the panel has been cut from nine to seven.

Alpha noted its recommendation of bonuses was made by Meridian Compensation Partners, LLC, a consulting firm that examined executives salaries across the sector to determine how much executives at the Bristol, Virginia-based mining firm should be paid. 

And it pointed out its request is not uncommon for restructuring firms, noting similar incentive plans have been granted in the bankruptcies of James River Coal Co., Circuit City Stores and Movie Gallery, among others.  

The proposed bonuses would equal $7.4 million if Alpha meets certain performance benchmarks, but could rise to as much as $14.8 million if those expectations are exceeded. 

The benchmarks include cost reduction, boosting the company's cash position and debt reduction, among other measures. 

Each benchmark is weighted as a percentage of the overall bonus with payments to be paid out over two performance periods in the first half of 2016. 

Alpha's cash position is given the most weight at 55 percent, followed by cost reductions (30 percent) and meeting environmental and safety standards (15 percent).

A third of the bonus will be paid following the first quarter of 2016, a third after the second quarter and the final third by the end of the year, provided the company has emerged from bankruptcy by that time.  

Practically speaking, the bonuses work like this: Alpha would have a $850 million cash target in the first performance period. If the company meets that target, executives will receive 27.5 percent of their bonus. If the company reaches a cash target of $750 million, its executives are entitled to 13.75 percent of their bonus. And if the company's liquidity meets or exceeds $900 million, they receive 55 percent of their bonus.

Likewise, if the company identifies $50 million in cost savings during the first quarter, executives will receive 15 percent of their bonus.  

Similar metrics apply in the second performance period.  

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Follow energy reporter Benjamin Storrow on Twitter @bstorrow

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