Like They Were Going Somewhere

Along with incredible stock option deals and low-interest loans, disgruntled telecom shareholders have one other reason to question the wisdom, if not the motives, of the executives and directors hired to watch over their property.

Even as some major players were slashing their payrolls to bring down operating costs, they were paying out multimillion-dollar bonuses to some top executives to keep them on the job. WorldCom paid $10 million each in retention bonuses to CFO Scott Sullivan and former Chairman and CEO Bernard Ebbers, while Lucent Technologies shelled out almost $15 million to four top execs, even as the company pared its workforce by nearly 50% since January 2001.

The retention bonuses to Sullivan and Ebbers, paid in 2000, were based on the stipulation that both execs remain with the company through September 2002. WorldCom won't say if Ebbers can keep his bonus because he remains as chairman emeritus, but the company plans to file a proxy statement later this month with the SEC regarding the matter.

Just Good Business

Experts say that giving top executives incentive to stay at a company when it's going through a merger or a difficult time makes good economic sense. "It's a lot less expensive to retain them than to replace them," says Amy Jantz, head of the research group at WorldatWork, a professional organization for compensation and benefits executives. It can cost anywhere from three to five times an executive's salary to find a replacement, she says.

Still, the idea of forking over millions to top executives while thousands of others are shown the door is at least questionable.

Lucent defends its bonus plan by saying it had to keep its management team intact after the October 2000 ouster of CEO Rich McGinn.

"When Henry [Schacht] came back in October 2000, the company was in a very difficult position," says a Lucent spokesman. "He needed to keep a small team of management on board for 18 to 24 months."

Lucent adds that the retained execs helped to drive $4 billion in cost reductions, making significant improvements in cash flow.

Of course, those same executives usually had a hand in guiding the company to its rocky position, critics of the bonus programs say.

"These are the guys who ran the company into the ground," says James Ikard, a lawyer who is representing 466 former Lucent employees in Oklahoma City in a lawsuit over severance packages. "Lucent seems to have been guilty of a series of miscalculations and mismanagements, and I can't imagine paying bonuses to people who'd done that."

And it's at least debatable whether WorldCom needed to make a $10 million payout to retain Ebbers, a WorldCom cofounder and a major stockholder who reportedly has more than $340 million in personal loans from the company.

Verizon's payout of more than $18 million to three top execs stemmed from its June 2000 merger with GTE. "The rationale is that these folks have the key skills that our corporation really needs," says a Verizon spokesperson. In 2001, Verizon cut its overall workforce by about 16,000.

TELECOM BONUS BABIES Their companies were trimming payroll, but these telecom execs got some sweet retention bonuses to stay on the job Company/Executive Bonus Size/Year Paid AT&T      Dave Dorman, president      Frank Ianna, president of AT&T Network Services $3.8 million*/2004 $4.2 million*/2002 Lucent      Ben Verwaaven, ex-vice chairman      Robert Holder, COO      Bill O'Shea, president of Bell Labs      Arun Netravali, chief scientist $5.8 million**/2002 $4.5 million/2002 $3.08 million/2002 $1 million/2002 Verizon      Lawrence Babbio, president      Michael Masin, president      Denny Strigl, CEO of Verizon Wireless $7 million/2001 $6.475 million/2001 $5.25 million/2001 WorldCom      Bernie Ebbers, chairman emeritus      Scott Sullivan, CFO $10 million/2000 $10 million/2000 *Value of restricted stock bonus at time of award, given in 2001; **Value of departure package, which included retention bonus and severance; Sources: company SEC filings and company reports

Copyright © 2004 Ziff Davis Media Inc. All Rights Reserved. Originally appearing in The Net Economy.