Execs Bag More Lucent Loot

When is a bonus not a bonus? That question may occur to shareholders, regarding the timing of payments to top executives at Lucent Technologies Inc. (NYSE: LU).

According to a deal signed in early December by Lucent's Chairman and former interim CEO Henry Schacht, Lucent executive VPs Robert Holder and William O'Shea were guaranteed cash payments totaling more than $7 million once Lucent got a new CEO.

These deals kicked in on Monday when Patricia Russo, Lucent's new CEO, arrived (see Lucent's Next Leader). This comes after Lucent officials said at the end of last year that executives would not receive bonuses in 2001 due to the company's poor performance.

The "retention payment plans" approved by Lucent's board were designed to keep the executives on through the company's difficult restructuring period. They were detailed by Schacht in letters dated December 3, 2001. According to the terms of those letters, Holder and O'Shea will now receive retention payments equal to two-times base salary and annual target bonus -- $4,500,000 and $3,080,000, respectively. The executives, who each hold more than 2,500,000 shares of Lucent stock, also were given the opportunity to exercise all their stock options on the award date -- April 22, 2002, or the employment of a new CEO, whichever came first.

Four months isn't a long time to wait before quitting, but that period was dramatically compressed when, on January 7, Russo arrived.

Holder and O'Shea get the money regardless of whether they stay at the company. So Lucent, playing it safe, is giving them each additional equity grants of 500,000 stock options and 500,000 restricted stock units to stay beyond the CEO's hire date. These options and units are set to vest over an unspecified period of time. (Lucent says options typically vest over two to four years.)

The retention deals raise many questions. With the CEO arriving just one month after the letters were written, was this a "retention payment" plan or really a bonus in sheep's clothing? And as it now stands, did the team know the new CEO's arrival was imminent? Can a CEO be hired in one month?

Lucent spokespeople say the plan for the retention bonuses had been conceived back in the spring of 2001, when it appeared that Alcatel SA (NYSE: ALA; Paris: CGEP:PA) might buy the company (see Lucent/Alcatel Rumors Fly and Alcatel, Lucent Throw in the Towel).

"The board realized that the way the severance policy was worded practically forced executives to leave in case of a merger," says Lucent spokesman Bill Price. Lucent had put in place a "rip cord" severance plan for its top team in February 2001, which gave them the option to quit within a specified timeframe if a new CEO arrived or their reporting arranagements changed.

According to Price, the idea of retention bonuses was only documented in December -- in Schacht's letters -- so that it could appear in the company's 2002 proxy statement, which was mailed to shareholders and filed with the SEC on December 28.

"I can't produce a letter showing that the retention payments were planned earlier," Price concedes.

Meanwhile, the company's proxy statement was specific on 2001 bonuses: "Because company performance fell short of our objectives in fiscal 2001... we decided not to award bonuses for company or individual performance until we meet the objectives of our business plan."

Some Wall Street analysts appear tolerant of the current arrangements with Holder and O'Shea. The Lucent execs have earned their wages, they say, whatever form they come in. "Yes, they found a way to give themselves a bonus; but hey, if I were in charge over there, I can't say I wouldn't do the same thing," says one securities analyst, who asked not to be named. "These guys have been the ones trying to stabilize the business in tough conditions, and they deserve to be paid for their efforts."

So far, it looks like there's no threat of Holder and O'Shea leaving Lucent. "Robert and Bill are delighted with Pat's appointment," says a Lucent spokesperson.

Lucent's efforts to incent its top team haven't worked across the board, however. Despite the offer of a $3,300,000 retention payment and other incentives, Ben Verwaayen has accepted the post of CEO British Telecom (BT) (NYSE: BTY), where he starts in February (see BT Snares Lucent Exec). Lucent says it's still in the process of negotiating with Verwaayen over parting compensation.

Lucent also seems to have adopted separate, more traditional, retention bonus arrangements for chief scientist Arun Netravali. His December 3 letter from Henry Schacht indicates that he'll get $1 million -- not payable on Russo's arrival but in two 50 percent installments, one on February 1, 2002, and another on December 1, 2002.

— Mary Jander, Senior Editor, Light Reading
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Cantankerous Oldfart 12/4/2012 | 11:05:18 PM
re: Execs Bag More Lucent Loot Where the heck are the lawyers when you need them?


Why does Bill O'Shea get to feast for his whole career on a company that needs real leadership?
OpticalValueLine 12/4/2012 | 11:05:16 PM
re: Execs Bag More Lucent Loot They are just like robbers. How do they feel when they use the money dining in restaurants where former LU employees are working as waiters?
optigirl 12/4/2012 | 11:05:16 PM
re: Execs Bag More Lucent Loot The sicker I get. This situation reeks. Retaining execs is important during a time of transition and whether we like it or not, that tends to be how the game is paid, I mean played.


This just reaks of backroom dealing that goes too damn far beyond the norm. If these were true retention bonuses they would be structured for performance and time and not for just rolling over in bed.

Thanks for reporting on this, LR. Nice job.
lo_mein_noodles 12/4/2012 | 11:05:15 PM
re: Execs Bag More Lucent Loot They feel just fine. They put that nice expensive meal right on the expense reort(making sure they don't tip more than 10%, don't want to waste company money you know...wink...wink) and laugh. It's really starting to get unbelievable at Lucent. What a joke.
hawkman 12/4/2012 | 11:05:15 PM
re: Execs Bag More Lucent Loot is there some kind of secret handshake? Attn all Lucent hiring managers, I promise I wont quit if you hire me, and I will only require 1/4 of what the other guys are getting for a retention incentive.
jggveth 12/4/2012 | 11:05:13 PM
re: Execs Bag More Lucent Loot 1. Go to Harvard Business School
2. Have no idea what you're talking about
3. Sound like everything you're saying is really important
4. Don't be too smart
5. Shamelessly kiss ass
showmethephotons 12/4/2012 | 11:05:12 PM
re: Execs Bag More Lucent Loot Optigirl:

I always read your emails with interest, but not always agreement. I felt in the past you have been slightly too supportive of the kinds of management practices going on in this "no business being done" environment.

In New York, where I'm from, "a conservative is a liberal who has been mugged."

Perhaps here, "a liberal is a conservative who has seen a little too much outrage."

I have never in all my years in business met people quite so concerned about their perks, image, status, and remunerations as ex-Lucent people. This says more about my lack of contact with people, really, than about them. But what is unique is how they maintained these concerns at a high and central level in the face of chrises that were threatening the enterprise. This is will never forget and cannot fathom.

lo_mein_noodles & valueline

"Lucent and Food"

Many many years ago, I made a marketing call to BTL Murray Hill. A scientist there, a nice fellow, had perfected the modelocking and frequency doubling of cw Nd:Yag laser. He was a member of the technical staff, he shortly later held an important position at Northern Telecom in an era in which I believe not too many people jumped around.

He took me to lunch in a panelled dining room where we were served lunch on white tableclothes by men resembling butlers. In 1982. I needed to supply a slight additional restoring torque to keep my jaw from dropping.

Prelude to the future...
gardner 12/4/2012 | 11:05:11 PM
re: Execs Bag More Lucent Loot
How do they feel when they use the money dining in restaurants where former LU employees are working as waiters?

I'm sure it doesn't bother them at all. You need a conscience to feel bad about things. If they had a conscience they would have stopped long ago.
zoinks! 12/4/2012 | 11:05:10 PM
re: Execs Bag More Lucent Loot I used to think that Bob Palmer was reaping ridiculous $$$ while Digital was crumbling...

...this takes the cake, though.
HarveyMudd 12/4/2012 | 11:05:05 PM
re: Execs Bag More Lucent Loot There is a corruption and politics at every level in Lucent. Pat Russo was aware of all these corruptions from day one, but she never objected to it.

Henry Schacht did more damage to Lucent in 1997 when he was at the helm of affairs. This all started as soon as AT&T divested Lucent.

Netavali was made President of Bell Labs who does no0t have any expertise in Telecommunications. He was fired from hos job when it became very obious that he could not function in that position. This started the disintegration of Bell Labs and continues right up to this moment.

Bell Labs, on a statistical basis, can handle upto to 300 projects simultaneously. But righrt now it can handle 20 projects.

There was not a thing that Bell Labs could not do, but not any more. There are alost over 5000 consultants from third world countries that have made Lucent a rubish company.

The Lucent management would stay in power indefnitely regardless of how the company does. The same thing that happened to Xerox. Of course, there was no attempt on the part of Xerox Corporation to plunder the wealth of the company.

I think that the time has come for the shareholders to oust all the current directors and bring a lawsuite for non-performance of their fidiciury responsiblities.

The looting of Lucent by these thugs is an attack against a very important icon Lucent/Bell Labs. These thugs are bent upon destroying history of Bell Labs.These thigs need to be put in jail.

What is happening at Lucent will far more deeper impact on the US econmy than what has happened at Enron Corporation.
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