Fat Cats Feast, Despite Layoffs

Despite the massive layoffs and cost-cutting measures that many optical networking companies face, some experts say they're not expecting executive salaries to drop much this year.

Instead, as the year wanes and firms prepare financial statements that reveal what their top honchos took home, signs are that the news won't be heartening to many rank-and-filers who've gotten the axe this year. Indeed, it appears companies with the largest pink slip totals are among those paying their CEOs top dollar.

Take the case of Rick Roscitt, who took over as CEO of ADC Telecommunications Inc. (Nasdaq: ADCT) earlier this year (see Rick Roscitt). According to SEC filings, Roscitt negotiated a base salary of $900,000 and a signing bonus of $1,500,000 with ADC's board. He also gets a long-term restricted cash compensation package totalling $5,500,000, of which $1,500,000 will be payable on his first anniversary of employment -- February 15, 2002.

All this and stock options too. Not to mention five weeks of paid vacation. In all, Roscitt's taking away $3,900,000 in basic cash compensation this year -- higher than predecessor William Cadogan, whose cash compensation in 2000 was $2,793,572, including $750,076 in base pay, $1,994,258 in bonuses, and $49,238 in miscellaneous earnings.

Meanwhile, ADC has joined the list of companies who have trimmed over a third of their workforce. By August, ADC had cut 40 percent of its staff, roughly 9,500 employees.

ADC isn't alone, but it's tough to tell just yet whether the public companies in this sector are ready to cut their executives' pay as part of their overall cost reduction programs. In a year of increasingly gloomy forecasts and heavy layoffs, there's some external pressure to do so, but experts give mixed messages about the possibility of major change.

"I'd expect executive pay to go down, but then, I expected it to go down last year as well," says Scott Klinger, an analyst with United for a Fair Economy (UFE), a not-for-profit organization that tracks the gap between America's very wealthy and the rest of the population. He says CEO pay in the U.S. has grown 20 percent in firms that have laid off 1,000 or more workers this year.

For many execs, keeping par with last year's pay would be a boon. Prior to leaving JDS Uniphase Inc. (Nasdaq: JDSU; Toronto: JDU), Kevin Kalkhoven made $738,078 in salary and bonuses and millions of dollars worth of exercised stock options.

When Jozef Straus, the present CEO, took the helm at JDSU, he contracted for a base salary of $500,000, plus an annual bonus of up to 100 percent of his annual salary, dependent on how well he achieves his objectives.

This year, JDSU has cut 15,000 people, 60 percent of its workforce.

John Roth, the CEO of Nortel Networks Corp. (NYSE/Toronto: NT), was awarded $6,773,616 in cash compensation in 2000, including a base salary of $1,104,167, a bonus of $5,636,250, and miscellaneous earnings of $33,199. Nortel won't comment on what Roth will earn this year until its proxy statement is officially published.

This year, Nortel has announced 30,000 layoffs, and word has it, more may be coming (see Nortel: More Layoffs?).

Some companies hint at changes. John Chambers of Cisco Systems Inc. (Nasdaq: CSCO) has stated that he will be taking a base salary of just $1 this year.

These cuts aren't likely to nibble into the boss's wallet too severely. After all, Chambers made $1,000,000 in bonuses last year -- on top of his base salary of $323,319. Sources valued his stock options at more than $100 million.

While Lucent Technologies Inc. (NYSE: LU) hasn't yet published the compensation figures for its present CEO, Henry Schacht, industry sources say it's likely to be different from that of his predecessor Richard A. McGinn, who left under a cloud in October 2000 (see McGinn: McGone). But for Schacht, it won't be tough to undercut the salary levels of the McGinn era and still make a sizeable living. From 1998 through 2000, Lucent's board approved over $20 million in base salary and bonuses for McGinn. That doesn't count miscellaneous additional cash compensation and the value of McGinn's stock.

In fairness, by 2000, Lucent's board, critical of the company's stock performance, had McGinn on short rations, leaving his $1,100,000 base salary unadjusted from the year before and giving him no bonus. But SEC filings issued by Lucent this summer reveal a rich severance package for McGinn, including a $5.5 million cash lump sum, his legal fees paid, and his bank loans covered to the tune of $4.3 million. McGinn also has ongoing pension, life insurance, and retirement benefits with Lucent -- not to mention his stock holdings.

In addition, until December 1, 2001 (unless he gets another job), Lucent will reimburse him for "all reasonable costs incurred by him in obtaining, furnishing and equipping an office at a non-Company location" at up to $9,000 a month.

McGinn's not the only executive who has gotten a good severance deal from Lucent. Deborah Hopkins, the CFO who resigned her post in May (see Lucent CFO Quits, World Yawns), just over one year after she'd joined the company, was awarded a $3,300,000 lump sum this summer. Hopkins will continue to receive medical and dental insurance, car allowance, and financial counseling, paid for by Lucent for two years, if she doesn't get another job first.

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

Lucent is certainly not the only company that continues to give out "golden parachutes." According to some U.K. newspapers, Lord Simpson, the ex-CEO of Marconi (see Heads Roll at Marconi), received $1.5 million in severance pay -- even though he has reportedly admitted responsibility for some of the company's latest financial woes. Marconi says the figure isn't valid, as it is still negotiating with Simpson.

Klinger of UFE says none of this is unusual. Top execs command big bucks, regardless of how their companies perform. "We don't see a big relationship between performance delivered and pay," he says.

Indeed, Klinger thinks technology companies may have been particularly hard-hit by a trend he has highlighted in his latest report. Specifically, after studying pay patterns for CEOs nationwide over a three-year period, he says he found a correlation between a company's stock performance and CEOs whose compensation is especially high.

"We found that if companies pay executives too much based on past performance, they tend to take higher risks going forward," he says. For instance, some execs, intent on meeting specific financial targets, are more likely to wind up pushing the limits of legality on accounting practices, or employing severe cost-cutting measures in order to meet specific short-term goals.

"It's a merry-go-round," he says. The upshot, he maintains, is that short-term gains are being sacrificed to strategies that might better benefit companies in the long run.

"CEOs justify their pay packages by saying they generate tremendous wealth for shareholders. But it’s a myth that CEOs are paid for excellence," Klinger wrote in a recent note. "Typically, their companies don’t deliver excellence. Companies with more limited wage gaps are actually better bets for shareholders."

Others say change is in the wind. "There's no doubt that salaries have gone down in general, and that CEO base salaries are getting lower," says Glen Rostie, president of The Network Mine, a search firm for networking professionals. He says any exec looking for a top-level job right now can expect most of his or her compensation to be in the form of bonsuses based on overall company performance.

— Mary Jander, Senior Editor, Light Reading
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Closed Borders 12/4/2012 | 7:48:23 PM
re: Fat Cats Feast, Despite Layoffs Carmack - I abandoned constructive terminology when you began insisting that corporate america runs washington dc, that we are all killers of the innocent, etc.

I sadly need to stick to my assertion that a) not enough oxygen is getting to your brain or b) you are trying to get a rise out of everyone by heeping insult onto americans and how we live or c) you have deep, deep problems with, or hatred of, the United States. You are clearly entitled to suffer from one or all of the aforesaid coniditons.

The claims you make are far more profound and injurious than my harmless nicknames for you.
The Carmack 12/4/2012 | 7:48:18 PM
re: Fat Cats Feast, Despite Layoffs Carmack - I abandoned constructive terminology when you began insisting that corporate america runs washington dc, that we are all killers of the innocent, etc.

I never said either of these things. I clearly said that corporations have too much (IMO) influence when it's the people who are supposed to have influence. Everyone already has a vote as an individual. Why do some people need extra votes just because other people work for them? Sure they're not votes per se, but the lobbying money is as good as votes, and often better. I am entitled to the opinion above, and I should not be insulted simply because I have that opinion.

As for the second generalization you made, I did not say that "America kills the innocent". I said there is a chance that the innocent may get executed if you execute people. If you think that never ever happens, you are the one deluding yourself.

I sadly need to stick to my assertion that a) not enough oxygen is getting to your brain or b) you are trying to get a rise out of everyone by heeping insult onto americans and how we live or c) you have deep, deep problems with, or hatred of, the United States. You are clearly entitled to suffer from one or all of the aforesaid coniditons.

Bigotry will get you nowhere... Who's making the inflamatory personal attacks again?

The claims you make are far more profound and injurious than my harmless nicknames for you.

BS. Do you claim that just because I disagree with how much power lobbyists have, and that *maybe* I disagree with state-sponsored executions of criminals, I am a "mentally challenged"? I haven't said anything that many other people in your country don't say already, and have the *right* to say. I think it's clear that you are a kind of person who can't take somebody disagreeing with them on a "big issue". The points I made were just that, points in a debate, not insults.

Calling people names is not acceptable in a debate, once you learn that perhaps you will find people willing to continue conversations with you. See ya.
nandaze 12/4/2012 | 7:47:44 PM
re: Fat Cats Feast, Despite Layoffs Carmack,

I have to agree with my fellow American. You spout out trite comments.

I have a Master in International Relations. I have lived overseas and speak two other languages fluently. I've been in International Business for the past seven years.

And I encounter people like you all the time.

You feel that since you've read a few books and visited the States, that you know us better than we know ourselves. You believe that we are ill-informed and uneducated, and that if only we knew what you knew we would not speak as we do. Look at all that lobbying. Isn't it terrible that in a capitalistic society the owners of the capital have so much say? Look at those executions. You're thinking, I'm so glad that I live in a civilized nation that believes in life time imprisonment. No chance we'll execute innocent people, we'll just lock them up the rest of their lives. I'm so superior to you, and I'm glad to mention this and many other salient points to my American friends whenever they come to visit me. I'm sure they enjoy my outside perspective, don't they?

God, you make me sick. You are full of sh#t. I'm so tired of you guys. Do you ever wonder why Canadiens wear their flag all the goddamn time when they visit Europe? So they don't have to hear that cr#p all the time from guys like you. Get a life.

We are a land fiercely protective of our individual liberties. We believe in secular not theocratic governing. We believe in the freedom of the press, the freedom of expression, and in the right to choose our leadership through democratic processes. We are fundamentally a good people.

We are not a land of corruption and inequity.

We are proud of our country. Why don't you shut the hell up. Geez.

Optitude 12/4/2012 | 7:47:43 PM
re: Fat Cats Feast, Despite Layoffs My coworkers and I have gotten big laughs from this Carmack character. We have to agree - his claims are those from someone who has no innate critical thought. And this is coming from an ASICs team of Pakistanis and Indians.

Carmack - if indeed you are a fellow foreigner, you are a laughing stock to all of us who have come to the United States so that we can do things like vote for our leaders for once, enjoy a just legal system, and live with a plurality of opinions. You no doubt can have your opinions however hilarious they are, but do not pretent to represent the (now near-majority!) immigrant population in the US.
Justathought 12/4/2012 | 7:46:50 PM
re: Fat Cats Feast, Despite Layoffs Optitude, Nandaze et al.
There is a tendency here that we end up with a sandbox-style, my-daddy-is-stronger-than-yours discussion and that may not be all that meaningful but allow me just a thought:

The former title of this discussion is somewhat misleading, neither Carmack nor myself invented it. Americans rightfully react to that title's blunt characterizations (inequity and corruption) of their country. This is probably neither the time nor the place for any criticism of this country, even though Carmack's points about the distribution of wealth and the judicial system in the US in my opinion seem well founded. An all-out satisfaction with the American way of life is fully understood and shared by many immigrants, particularly from the developing part of the world. However, those arriving from e.g. Canada, Australia and Europe may already have enjoyed the benefits Optitude listed, in their countries of origin. The "CAE"-immigrants, often well educated but opportunistic, are attracted by the higher pay-offs on their degress in the US. Still, they are not necessarily as content with the distribution of wealth, the related crime rates and the legal system (yeah I know, tell them to like it or leave).

Now, we all realize we can't both eat the cake and have it. Hence, the fact that most people from US, CAE and all other parts of the world for that matter, are all for their respective systems, doesn't prevent them from enjoying work outside their home country, learning from the experiences of others. America remains the land of opportunity, maybe partly because of the different perspectives immigrants bring to the table - not only Native Americans deserve credits for the greatness of our country.
brichter 12/4/2012 | 7:46:46 PM
re: Fat Cats Feast, Despite Layoffs As someone who knows a forklift driver, if he's working 60 hrs. a week, he's making $80-85K a year!

And if your working 60 hours a week and driving a forklift for $20K a year, you think its absurd that the plant manager is making $150K a year.
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