Amid ongoing restructuring woes, Lucent Technologies Inc. (NYSE: LU) spent more than $3 million on executive salaries in 2001, and the company is ready to pay $11.8 million in bonuses to retain four of its key executives in 2002.

In documents filed earlier this week with the U.S. Securities and Exchange Commission, Lucent revealed that each of the members of its top management team were awarded salaries above $400,000 in 2001, despite being given no bonuses in light of the company’s financial condition. Lucent also lavished over 13 million stock options on its top team.

The execs were given other extras as well. They received $84,476 in chaffeur services, company aircraft use, and car allowance. Many received thousands of dollars worth of financial counseling services. And all were provided sizeable reimbursements for the instances in which their fringe benefits might have increased their tax liability.

Due to the arrangement of Lucent’s fiscal year, even ex-CEO Rich McGinn, ousted by the board in October 2000, wound up getting over $100,000 in base pay, plus $7,523 in tax reimbursement (see Rich McGinn). And he’s going to be on the payroll permanently: On top of his original severance arrangement, he’s entitled to a pension of $870,000 annually (see 2001 Top Ten: Fat Cats).

Table 1: Lucent Executive Compensation At a Glance

Regarding the present team, Lucent’s created an extensive program to persuade them to stay the course during restructuring. The company's annual report states: “To ensure that highly qualified key membersof management would stay to see this work through despite considerable personaluncertainty, we developed (1) severance protection arrangements and(2) retention payments for selected officers.”

Under terms of the arrangements, top execs are entitled to retention bonuses equal to about two years of salary and estimated “target bonus” amounts this spring -- the time when Lucent reportedly plans to install a new CEO to replace Henry Schacht, who was called in to replace McGinn last year and has apparently been trying to retire since 1995 (see McGinn: McGone).

In addition, certain execs -- executive VP Robert Holder, Bell Labs president William O’Shea (see Bell Labs Headed by New Prez), and executive chairman Ben Verwaayen -- will be given the option to receive the two-year-salary-plus-bonus money in payments over a two-year period if they choose to leave their posts within six months of the hiring of a new CEO, if their reporting relationship to CEO Schacht changes, or after April 22, 2002 (the date of Schacht’s 18-month tenure in his current position).

”This enhanced retention arrangement ensuresthat the incentives for senior management to remain in leadership positionswithin the company are greater than the benefits they could receive under aself-initiated severance arrangement,” Lucent’s documentation says.

Despite these arrangements, Lucent’s set to lose at least one of its top executives. Early in December, the company announced that Ben Verwaayen had accepted the post of chief executive of British Telecom (BT) (NYSE: BTY) and plans to become CEO there in February.

Terms of Verwaayen's severance arrangement are still being worked out, spokespeople say. On the table are a range of items Lucent ceded to Verwaayen to get him to sign on at Lucent in 1997, including a $1 million mortgage loan guarantee, more than 300,000 stock options vesting in 2002, and a "customized" pension that will total $1,300,000 annually after Verwaayen, 49, reaches age 60.

In sum, Lucent had one of the worst years in corporate history, and it's clearly not out of the woods yet (see 2001 Top Ten: Financial Stories). Still, management continues a long tradition of sizeable compensation. The situation was summed up well by Henry Schacht in a note to Verwaayen about the company's new severance policy, dated February 14, 2001: "Challenging times can be the most satisfying and rewarding times of ourprofessional lives."

At Lucent, that's clearly the case.

— Mary Jander, Senior Editor, Light Reading
http://www.lightreading.com