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

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.

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mcat 12/4/2012 | 11:12:06 PM
re: It's Christmas Time at Lucent Lucent is a highly complex company in a fast changing environment. If Lucent continues to be strategically managed by individuals who continue to utilize the same old fashioned world-view of: having a strategy of cutting jobs and benefits while utilizing the wide range of available accounting gimmicks to achieve the appearance of profitability and consequently rewarding the highest level of this incompetant management with obsence levels of compensation; it will continue to fail as an organization. Organizations using artificial crutches will not flourish adequately in the next capex upswing to sustain themselves in the following capex downswing. The party is over. Bye, Bye.
PO 12/4/2012 | 11:11:59 PM
re: It's Christmas Time at Lucent Time was you did your job well and didn't get fired for incompetence.

Now, boards talk about 'retention bonuses' without any good examples of either their need or their efficacy. And raises in base pay that are just out of this world.

It's time for the shareholders to take action: this is their money being redirected to insiders.

And by the way, Chambers is no better, taking part ownership of the company away from the true owners (paid shareholders) instead of cash compensation.
BobbyMax 12/4/2012 | 11:11:52 PM
re: It's Christmas Time at Lucent Lucent has about 36,000 employees. In the last two years, no product announcement has been made. These high level management guys making so much money for ding nothing. This is really stealing money from the company. Lucent's Board is inept as they lot of money, life insurance medical benefits and free vacation to Europe and Hawaii.

The US Government has failed to curb the corruption from its companies and wants the rest of the world to keep alive its companies. We all know that the US Government had banned import of carpets from Afhanistan, Iran, Pakistan, and India claiming they use child labor, Where is the rest of the world to ban use of US goods and services since it is unable to control corruption from the companies from companies within its borders.
technonerd 12/4/2012 | 11:11:50 PM
re: It's Christmas Time at Lucent correction: Not "crong" but "crony"
technonerd 12/4/2012 | 11:11:50 PM
re: It's Christmas Time at Lucent The US Government has failed to curb the corruption from its companies and wants the rest of the world to keep alive its companies.
I agree with the first half of the statement. As for the second half, I think the reality is that the U.S. has a very open economy that, if anything, has been overly willing to accept imports to the detriment of its home industries.

One consequence has been to leave other economies, such as Japan, off the hook when it comes to developing domestic consumer markets. The U.S. has become the consumer of last resort using dollars that have value only because there's really no alternative at the moment. I think China is rapidly becoming an alternative, but won't be a full-blown alternative for a while.

Back to corruption, yes I think the U.S. corporate structure has become phenomenally corrupt. Every time I hear anyone from this country challenge, say, Indonesian crong capitalism, I have to laugh.
orange 12/4/2012 | 11:11:47 PM
re: It's Christmas Time at Lucent The really sad part is putting up Nortel's stock price against Lucent's stock price over the last year. Lucent's performance is about 2/3 of Nortel's. Pat's and Lucent's performance has been pathetic over the the last year. When I was in high school 67% was a failing grade. It's only going to get worse all Lucent has is its "enstalled base." However every year other vendors with newer better products take market share. This assessment is based on facts, and is not just another "Lucent Sucks" rant, although it does.
Snape 12/4/2012 | 11:11:44 PM
re: It's Christmas Time at Lucent This whole sad saga is just another example of how the management at Lucent can be counted on to do the exact wrong thing. From product cancellations to cuts they've made some decisions that in the long run will will be to their doom.
Follow my logic:

1. Execs get awarded nice fat bonuses for turning a profit one quarter. A profit that was more due to the pension fund than any real sales.
2. At this same time, they are going over metrics for raises amongst the worker bees. After following a process worthy of IRS tax form, you can calcuate that you won't get a raise.
3. They've reworked sales comp. Granted soem of it was out of whack, but during the long sales cycle to a carrier, you can bet the lesser apes and gibbons on the sales tree aren't going to make squat. It's a huge motivator, the new comp plan from what I hear. Motivates you to leave.
4. They've announce nothing new productwise save some OEM stuff.

Bottom line is the've positioned themselves to have the meat eater sales pros and and most of the engineering talent - whatever is left, to come to the reaization that it's time to seek greener pastures.

Once things start to float up somewhat, and we've seen activity start like the first snow crocuses of spring, Lu will be left a company struggling to maintain it's 5E business as it shrinks away.

A company of scrubs.
whyiswhy 12/4/2012 | 11:11:42 PM
re: It's Christmas Time at Lucent LU is a Cow, and she is being slaughtered.

The retirees got the shaft, the average workers are next, then the lower management.

Hide, flesh, meat, then bone.

The only new customers she gets are STUPID customers.

Any present customer with a BRAIN is figuring out how to cross over to Cisco or Juniper or Nortel (etc) equipment.

That just means Pat gets to reward herself on the basis of less and less. But she and the BOD will reward themselves nevertheless. More and more.

If the institutions that own LU don't give a crap, which they apparently don't, the only thing that will be left is the echo of the "Moo".

This is a process I have seen over and over: the entrepeneurs die off, and the little old widows give their stocks over to "money managers" who could not care less about agressively building the business.

They are milking it too.

But then again, the workers at Cisco cheer!

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