It's Christmas Time at Lucent

Remember this? Lucent Fat Cats Gorge in 2002? Looks as if Lucent Technologies Inc. (NYSE: LU) executives are having another banner year in the compensation department.

The vendor has handed five senior executives seven-figure bonuses at the end of a financial year that saw the vendor record a net loss of $770 million and lose a further 7,500 staff, according to a preliminary proxy statement the company filed this week with the Securities and Exchange Commission (SEC).

Chairman and CEO Patricia Russo picked up a $3,245,333 bonus in addition to her annual salary of $1.2 million in the vendor's financial year ended September 30, 2003. The bonus comprises an annual incentive to be paid this month, plus the first tranche of a three-year, long-term performance award that will be paid in 2005. In the previous year Russo was awarded a $1.8 million bonus on top of her $887,692 salary.

The CEO was also awarded the option to buy 2.5 million shares at $1.42, less than half the current share price.

According to the SEC filing, Russo got an annual "incentive" of $2 million "in recognition of her leadership in driving the considerable progress the company achieved versus its goals in such critical areas as customer satisfaction, operational performance, strategic partnerships and alliances, and employee engagement." The filing also noted the vendor's achievement in recording a profit in the fourth quarter of the financial year (see Lucent's Back in Black), as well as the development of a five-year strategic plan.

Despite the company's annual loss, the vendor's finances were greatly improved on the previous year, though overall revenues were down. Net loss in 2002 was $11.8 billion, or $3.49 per share, on revenues of $12.3 billion, compared with the 2003 net loss of $770 million, 29 cents per share, on revenues of $8.5 billion.

In addition, total operating expenses were dramatically cut from $8.5 billion in 2002 to $2.3 billion in fiscal 2003.

Despite the financial improvements and new direction for the company, many still have questions about Lucent's long-term success in a telecom landscape that's gravitating toward next-generation products, where Lucent has many weaknesses (see Incumbents Converge on Convergence).

In the short-term, however, the financial improvements mean that Russo and others are building some enviable nest eggs. CFO Frank D'Amelio pocketed a cool $1,463,667 in addition to his $600,000 annual salary, while Bill O'Shea, president of Bell Labs, landed a $1,238,463 bonus on top of his $700,00 salary.

Table 1: Lucent FY 2003 Salaries, Bonuses & Options

Name	Position	Salary FY 03	Annual Bonus FY 03	Long-Term Bonus*	Stock Option
Patricia Russo	CEO and Chairman	$1.2 million	$2 million	$1,245,333	2.5 million at $1.42
Frank D'Amelio	CFO	$600,000	$841,000	$622,667	1.75 million at $1.42
William O'Shea	President Bell Labs, EVP Strategy and Marketing	$700,000	$745,000	$493,463	700,000 at $1.42
Janet Davidson	President Integrated Network Solutions	$550,000	$616,000	$544,833	1,305,862 at $1.78 and 650,000 at $1.42
James Brewington	President Mobility Solutions	$550,000	$560,000	$544,833	1,733,441 at $1.78 and 650,000 at $1.42
* = 2003 portion of three-year performance award payable in December 2005 Source: Lucent filing with SEC

In addition to these generous awards, many Lucent employees are due to receive cash bonuses this month (though not of the same magnitude). A Lucent spokesman confirmed that, given the improved financial position of the company overall, Lucent staff would be awarded bonuses "based on merit related to personal and team performance in the past year," though he couldn't confirm that all staff would be on the receiving end of the largesse.

Lucent's share price fell by 9 cents to $3.05 at the close of the market Wednesday, giving it a market capitalization of $12.7 billion. The vendor's 52-week share price high is $3.45, and the low $1.21. The company now employs about 34,500.

— Ray Le Maistre, International Editor, Boardwatch

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For more on the next-gen telecom scene – including Lucent's equivocal position – check out the recent Heavy Reading report: Setting a Course to Convergence: The Incumbents' Wireline Strategies.