2001 Top Ten: Fat Cats

Life's tough at the top.

The largest economic downturn in telecom history has challenged top executives as never before. The retrenchment of companies such as Lucent Technologies Inc. (NYSE: LU) and Nortel Networks Corp. (NYSE/Toronto: NT) has called for every ounce of skill and credibility CEOs, CFOs, CTOs, and other Os can muster. It's clearly not a job for the faint of heart – or stomach.

And as executives have been pushed into the limelight, the resulting glare has exposed more than ever the inequities of the corporate world.

While no one can deny the outstanding qualities that many managers brought to the crises at hand in 2001, it's clear that for a select group of telecom executives, enormous compensation has taken on the status of a right rather than a reward.

Indeed, while more than 140,000 unfortunate folk were given pink slips (see Grim Reaping: A Downturn Tally), the fat cats of the broadband world missed barely a beat – albeit some had their bonuses trimmed a tad.

Here's our take on those executives that made out like bandits in 2001, starting with the merely plump and moving on to the morbidly obese.

No. 10: Kevin Kalkoven

While he hasn't headed up a big company since leaving his post as CEO of JDS Uniphase Inc. (Nasdaq: JDSU; Toronto: JDU), in May 2000 (see Kalkhoven Quits JDS Uniphase), Kevin Kalkhoven made this list through sheer conspicuous consumption. Indeed, throughout 2001 he's exemplified the lifestyle many top execs aspire to once they've cut the ties that bind them to their top jobs. When he left JDSU (just before things got really tough), he was making $738,078 in salary and bonuses, plus millions of dollars worth of exercised stock options.

Of course, the Kevster hasn't been resting on his wallet. He spent this last year jetting, motor racing, scuba diving, and skiing his way 'round the world (see Kalkhoven's Five-Year Plan). This fall, he told us he'd invested in a new Gulfstream jet – an aircraft that reportedly sells for upwards of $30 million.

He's also been working – selectively helping to launch and/or maintain several startups, including Innovance Networks, Iolon Inc., and Optium Corp. (see Kalkhoven Opts for Optium). He's lent a hand over at Applied Micro Circuits Corp. (AMCC) (Nasdaq: AMCC) as well (see Kalkhoven Joins AMCC Board). Way to go, Kev!

No. 9: Thomas Gill, Bruce Haney, and colleagues.

While these ex-Fore Systems executives also didn't sever their former employment this year, it was in 2001 that the full story emerged of the high payouts they and others received when Marconi PLC (Nasdaq/London: MONI) bought Fore in April 1999.

Indeed, while Marconi has wrestled with the failure of the deal – including massive restructuring and a writedown of about $4.5 billion in goodwill this fall – these corpulent felines were sitting pretty. Their sheer wealth (not to mention cojones) have made them the brunt of negative sentiment, as evidenced in a class action lawsuit in which shareholders have accused them of allegedly increasing the value of their shares just prior to the merger (see Fraud Case Hangs Over Fore Fat Cats).

SEC filings indicate that ex-Fore CEO Thomas Gill was given a salary of $500,000 and $15.4 million in cash for his unvested stock options during the acquisition. Bruce Haney, Fore's CFO, was given $275,000 in base salary and a payout of $4.8 million for his unvested stock options. Both men left shortly after the deal closed.

Other Fore executives, including SVPs Robert Musslewhite, Kevin Nigh, J. Niel Viljoen, Donal Byrne, and Ronald McKenzie received a total of over $28 million in payments for unvested stock options. All but Viljoen left Marconi after the merger. Well timed, dudes!

No. 8: David Huber

The CEO of Corvis Corp. (Nasdaq: CORV) has managed to profit handsomely from his company's July 2000 IPO, despite numerous setbacks that have brought Corvis's valuation to a fraction of its original level. Indeed, since going public (see Avici and Corvis Make Stunning Debuts), the company's stock has plunged from a high of $108 to about $2.97 a share today. Investors remain spooked by capital spending cuts undertaken by Corvis’s largest potential customers, as well as mounting losses and insiders selling shares.

Nevertheless, through various trusts associated with him, the good doctor managed to sell more than 6 million shares, roughly $94 million worth of stock, between the time the lockup period on the shares expired in January 2001 (see Eyes on Corvis Lockup Expiration) and today's downturn. That's not to say he's still not investing in Corvis: In October, he spent more than $300,000 on even more shares (see Corvis Execs Get Bullish).

No. 7: John Mayo

When the top brass at Marconi were ousted in September (see Heads Roll at Marconi), word had it that a rich package was in the offing for former CEO Lord Simpson. As it turned out, however, his lordship received "only" £300,000, or about US$435,000 (see Marconi Pays Off Lord Simpson), while former deputy chief executive John Mayo – who was sent packing in an earlier move (see Mayo 'Resigns' from Marconi) – was awarded £600,000 (about $870,000), in addition to ongoing pension and benefits. Talk about managing up!

No. 6: John T. Chambers

The CEO of Cisco Systems Inc. (Nasdaq: CSCO) has earned his place on this list by eating humble pie without going hungry. In light of Cisco's financial setbacks this year, including the layoff of over 9,000, Chambers has asked that his pay be adjusted. Next year, by his own choosing, Chambers has opted for a base salary of $1, compared to $268,131 in 2001, in order to tie his compensation "to Company performance and stock price appreciation." (See Are Fat Cats Slimming Down?.)

Chambers probably won't suffer much. Indeed, his real compensation is clearly in stock. For 2001, he received options to purchase 6 million Cisco shares at the price fixed on the grant date. According to SEC filings, his current exercisable options are worth well over $100 million.

No. 5: John Roth

There's a chance the former CEO of Nortel shouldn't be on this list. After all, the company hasn't yet divulged what they paid him in 2001. Still, in 2000 he earned $6.7 million in cash, including $1,104,167 in base salary, a bonus of $5.6 million, and miscellaneous earnings of $33,199. And while he exited his post November 1, six months before he'd originally planned to do so (see Nortel Swings Axe, Switches CEOs), it's not likely he'll be going without a nice parcel of retirement comfort. Just sitting on the board could earn him $50,000 pocket change.

No. 4: Jozef Straus

The present CEO of JDSU is also among those who probably won't suffer from the coal Santa's doled out this year. Straus earns a base salary of $500,000, plus an annual bonus of up to 100 percent of his salary, dependent on how well he achieves his objectives.

The board determined in October that there would be no bonus this year for Straus and other top JDSU execs. Instead, it's opted to give Straus a modest 4 percent raise on his base pay, plus "options to purchase 300,000 shares of Common Stock at a purchase price of $112.625."

Hopefully, next year will be better for Straus – and for the company, which has cut more than 15,000 jobs and remains in straitened finances (see Sizing Up JDSU's Massive Loss and JDSU Posts Gloomy Outlook).

No. 3: Rick Roscitt

The "new" CEO of ADC Telecommunications Inc. (Nasdaq: ADCT) – one of the industry's most troubled companies (see ADC Cuts Guidance, Costs, Workforce, ADC Reports Earnings, and ADC Reorganizes) – has managed to negotiate one of the industry's largest base compensation packages.

On his hiring last February, Rick Roscitt arranged with ADC's board for a base salary of $900,000 and a signing bonus of $1,500,000. He also gets a long-term restricted cash compensation package totaling $5,500,000, of which $1,500,000 will be payable on his first anniversary of employment – February 15, 2002. Roscitt also gets five weeks paid vacation.

Meanwhile, by August, ADC had cut roughly 9,500 employees, or about 40 percent of its staff.

No. 2: Rich McGinn and Deborah Hopkins The former Lucent CEO left under a cloud in October of 2000 (see McGinn: McGone). But Lucent continues to pay McGinn an annual pension of $870,000. His stock holdings remain the largest on record: As of October 1, he owned 40 percent of the 17 million shares of common stock owned by management and directors. And until he started his new job as a VC (see McGinn McFound), Lucent paid McGinn up to $9,000 monthly to maintain a personal office at a non-company location.

Indeed, the McGinnster's overall compensation record is worth memorializing in any year. Between 1998 and 2000, Lucent's board approved better than $20 million in salary and bonuses for McGinn. His severance package, the terms of which came to light this past summer, included $5.5 million in cash, his legal fees paid, and his bank loans covered to the tune of $4.3 million.

Lucent's ex-CFO earned her place on this list by making maximum bucks in the shortest tenure. When she resigned her post in May 2001 after working for Lucent one year (see Lucent CFO Quits, World Yawns), Hopkins was awarded $3,300,000. She will continue to receive medical and dental insurance, car allowance, and financial counseling, paid for by Lucent for two years, unless she gets another job first.

All of this was given in addition to Hopkins's regular compensation for 2000, which totaled $5,165,298 in base salary, bonuses, and other cash compensation. In total, Deborah Hopkins was awarded over $8 million for one year's work – not counting stock awards and options.

No. 1: Lucent's Executive Team. The worst year in Lucent's history was still a lucrative one for its five top managers (see Lucent Execs Get Richer). CEO Henry Schacht and his henchmen garnered over $3 million in base pay, plus millions of share options – not to mention ongoing perks such as chaffeur services, the company plane, and car allowances. They'll also rake in multimillion-dollar "retention bonuses" for staying on at the company through its restructuring this year.

It's a question as to whether Lucent's efforts to keep a grip on its managers really pays off. Indeed, Rich McGinn's experience seems to indicate that ex-execs do as well as, or better than, their counterparts who choose to stay on the job. And retention incentives failed to keep vice chairman Ben Verwaayen's nose to the grindstone. Despite $741,667 in base pay and more than $3 million in share options, Verwaayen plans to join British Telecom (BT) (NYSE: BTY) as CEO this coming February. Terms of his severance are still being negotiated at Lucent. Can't wait to check 'em out!

It may be lonely at the top, but it sure is lucrative.

— Mary Jander, Senior Editor, Light Reading
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hpns 12/4/2012 | 11:07:17 PM
re: 2001 Top Ten: Fat Cats I'm always amazed to read articles about executive pay.
Would it make everybody feel better if John Chambers is paid as much as an engineer while some TV stars, movies stars, rock stars, sports stars keep getting millions a year? Would it be better off for America to have everybody working the same and be paid the same?
I think everybody agrees that a progressive society needs stars and heros. Why Jozef Strauss shouldn't be paid millions while his company accumulates billions and his shareholders get zillions and his ordinary employees buy boats houses cars? Isn't that the same thing as Julia Roberts gets paid 50 million a movie because the movie she stars can pulls in 300 millions?
Thus those who worth should be paid accordingly. How many of us can do a nice job as Kevin Kolkhoven, by the way?
On the other side, I do have problem with those compensation packages for which performance or not money is always in the pocket. Why companies don't tie 90% of their compensation with profit and stock performance? Why they have to agree big cash up front instead of paying out of a percentage from profit? If I were the chairman of the board, I'd think the one who wants the most cash up front is the weakest. But you know, life is nothing but compromises...
Happy New Year Lightreading!
tony1athome 12/4/2012 | 11:07:17 PM
re: 2001 Top Ten: Fat Cats
You still have to pay the rent.

And for some folks with outrageous lifestyles, the rent is pretty dear.

optical_guy 12/4/2012 | 11:07:14 PM
re: 2001 Top Ten: Fat Cats I agree that outrageous compensation without performace is a travesty.

My biggest problem with folks on this list is with Huber selling off stock while his company tanks...reminds me of the old saw about Nero fiddling as Rome burned but even worse since his actions fueled critism about the company's execs lack of confidence and hence contributed to the stock's decline. AFTER the damage was done he finally issued a PR about these being blind trusts, although I can't believe that he did not excersise any influence on the actions of these trusts that I would assume were for family members.

rjmcmahon 12/4/2012 | 11:07:13 PM
re: 2001 Top Ten: Fat Cats Would it make everybody feel better if John Chambers is paid as much as an engineer while some TV stars, movies stars, rock stars, sports stars keep getting millions a year?

This analogy breaks down quickly. Derek Jetter sells tickets not George Steinbrenner.

Execs have an obligation to the shareholders and to the employees in priority order. Binding their egos to equity ownership seems best, which seems further revealed by the fact that the most successful businesses seem to have kept their founders as their leaders.
billyjoebob 12/4/2012 | 11:06:59 PM
re: 2001 Top Ten: Fat Cats The board of directors of each company determines the pay package for the CEO, CFO or xxO. If you look at the makeup of the boards, they are pimarily xxOs at other companies or former xxOs. They learned from watching sports, escalating salaries benefit the few. Baseball is in sever problems because only about 5 or 6 teams are even breaking even. Salaries continue to escalate due to owner ego issues. xxO salaries escalate for the very same reason. Compensation should be tied to a percentage or profits and stock growth.

Until there is a share holder revolt, this game will continue. Vote your proxy statements!
dodo 12/4/2012 | 11:06:57 PM
re: 2001 Top Ten: Fat Cats Billyjoe

Agreed but apart from individual shareholders ( like you and I), the big mutual funds' managers need to show their discontent also. They have more shareholder power than us, individuals. Some have started doing just that but they are a minority
gea 12/4/2012 | 7:22:51 PM
re: 2001 Top Ten: Fat Cats This was a good one. I have also decried this type of thing in American business, and the fact that any one of these guy's reward for screwing up royally is equal to the combined salaries of lots of the folks cut during these times is unforgivable.
Some might argue that this is "necessary", and I would point out that in many other parts of the industrialized world (ie Japan and Europe) the difference in compensation between the tops and bottoms at a company is nearly so great.

In the post-9/11 world, we keep hearing how we Americans need to "stick together", but this idea doesn't seem to extend into big business. We pretend these practices serve the "bottom line", but the facts mentioned in this list prove otherwise. Look--I'm not asking that big CEOs make a little more than what I make, just that they don't get multi-million dollar rewards when things implode.
tink 12/4/2012 | 7:22:48 PM
re: 2001 Top Ten: Fat Cats The article says that Chambers got 6 million options that are now worth 100 million. That implies a $16.67 increase in the share price of CSCO since the grant date, but Cisco has not gone up that much. What's the actual grant price and, thus, the actual value of Chambers' options?

raman 12/4/2012 | 7:22:48 PM
re: 2001 Top Ten: Fat Cats tink wrote: The article says that Chambers got 6 million options that are now worth 100 million. That implies a $16.67 increase in the share price of CSCO since the grant date, but Cisco has not gone up that much. What's the actual grant price and, thus, the actual value of Chambers' options?

Your question is valid. Looks like the article is doing a 10000 foot view- estimation- fuzzy math ;-) but ragardless the actual value is probably in tens of millions anyway !
Mary Jander 12/4/2012 | 7:22:46 PM
re: 2001 Top Ten: Fat Cats Actually, I have changed the wording a bit. While Chambers received 6 million options as part of this year's compensation, it is the value of his overall holdings that exceeds $100M. Sorry for the confusion.
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