Ex-Lucent Execs Question New Plan

In an effort to boost morale and keep employees, Lucent Technologies Inc. (NYSE: LU) last week announced to workers that it would be revising its bonus and options plan to be more competitive with startups and other competitors. But former employees say the efforts are too little, too late.

“They should have been focusing on this two years ago,” says one former marketing executive from Lucent, who has since joined a startup. “The people who are left aren't the risk takers. The sad thing is that Lucent had great people, and they had them in spades, but they didn’t know how to keep them." Even though the company has sued former employees for violating non-compete agreements, retaining employees has never been Lucent’s strong suit, says another ex-employee, who entered the company through the Ascend acquisition.

“They would fight like hell to get someone into the company,” he says. “But then they wouldn’t offer you anything once you were on the inside.”

Lucent is trying to change all that. The first thing it’s doing is moving the year-end review up one month. Usually, bonuses, raises, and stock options would all be issued in December, but this year Lucent has decided to do it a month earlier.

Also, instead of giving out cash bonuses yearly, Lucent will now offer them on a quarterly basis. Additionally, bonuses will be based more on individual performance than on that of a particular business unit, which has been the typical practice within the company.

“We’re putting greater emphasis on individual performance rather than on financial targets,” says Bill Price spokesman for Lucent. “Clearly we have some progress to make, but we think that moving evaluations to a quarterly schedule will give some short term incentives on progress.”

But many former employees think this is an act of desperation, especially considering that most of the long-term employees’ current shares are worth considerably less now than when they bought them. Lucent shares are currently trading around $24 -- down $50 from their November 1999 price. As one former employee put it, “They are so far under water, they have the bends.”

Lucent is also changing its lump-sum vesting program to one that is more in line with startups. Starting this year, employees will begin vesting one year from their date of hire, with 25 percent of those shares vesting incrementally each year for four years.

This is a huge shift for the company, which hasn’t had an aggressive stock option plan, say former employees.

“They’d brag about their great retirement plan,” says an ex-marketing executive. “I just thought they were nuts. Anybody worth anything in this industry doesn’t hang around somewhere for thirty years for a retirement plan.”

Even with all the changes to the compensation and incentive plans, many old Lucent employees say that most of the talent has already left.

Lucent’s focus on retention comes after the company has cut earnings estimates five quarters in a row. The company says its employee turnover rate is approaching 20 percent. Lucent spokespeople recently told the Wall Street Journal that this is in line with other companies in the industry.

Almost one entire unit left in July (see Lucent Faces "Exodus of Nexabit Staff"). Then last month, Rich McGinn, the Lucent CEO was told to step down, and the company announced it's reshuffling its corporate structure, consolidating business units and trimming the work force (see McGinn: McGone). Lay-offs began last week in Murray Hill, N.J., with more to come later this month.

-- Marguerite Reardon, senior editor, Light Reading, http://www.lightreading.com

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