Lucent Execs Get Richer

Amid ongoing restructuring woes, Lucent Technologies Inc. (NYSE: LU) spent more than $3 million on executive salaries in 2001, and the company is ready to pay $11.8 million in bonuses to retain four of its key executives in 2002.

In documents filed earlier this week with the U.S. Securities and Exchange Commission, Lucent revealed that each of the members of its top management team were awarded salaries above $400,000 in 2001, despite being given no bonuses in light of the company’s financial condition. Lucent also lavished over 13 million stock options on its top team.

The execs were given other extras as well. They received $84,476 in chaffeur services, company aircraft use, and car allowance. Many received thousands of dollars worth of financial counseling services. And all were provided sizeable reimbursements for the instances in which their fringe benefits might have increased their tax liability.

Due to the arrangement of Lucent’s fiscal year, even ex-CEO Rich McGinn, ousted by the board in October 2000, wound up getting over $100,000 in base pay, plus $7,523 in tax reimbursement (see Rich McGinn). And he’s going to be on the payroll permanently: On top of his original severance arrangement, he’s entitled to a pension of $870,000 annually (see 2001 Top Ten: Fat Cats).

Table 1: Lucent Executive Compensation At a Glance
Executive Title 2001 base salary 2001 long-term incentives (shares underlying awarded stock options) 2002 special retention awards Shares owned as of October 1, 2001*
Henry B. Schacht Chairman of the board and chief executive officer $1,008,333 3,544,512 -- 1,844,042
Bernardus J.M. Verwaayen Former vice chairman $741,667 3,421,125 $3,300,000 2,583,430
Robert C. Holder Executive VP $708,333 2,775,445 $4,500,000 1,374,511
William T. O'Shea President, Bell Labs, and executive VP, corporate strategy and marketing $541,667 2,551,889 $3,080,000 2,572,058
Arun Netravali Chief scientist $491,667 1,565,076 $1,000,000 1,749,397
Richard A. McGinn Former chief executive officer $183,333 -- -- 6,979,973
* Includes common stock beneficially owned, plus common-stock equivalents, such as restricted stock units and amounts held in Lucent stock accounts under the company's Deferred Compensation Plan.

Regarding the present team, Lucent’s created an extensive program to persuade them to stay the course during restructuring. The company's annual report states: “To ensure that highly qualified key members of management would stay to see this work through despite considerable personal uncertainty, we developed (1) severance protection arrangements and (2) retention payments for selected officers.”

Under terms of the arrangements, top execs are entitled to retention bonuses equal to about two years of salary and estimated “target bonus” amounts this spring -- the time when Lucent reportedly plans to install a new CEO to replace Henry Schacht, who was called in to replace McGinn last year and has apparently been trying to retire since 1995 (see McGinn: McGone).

In addition, certain execs -- executive VP Robert Holder, Bell Labs president William O’Shea (see Bell Labs Headed by New Prez), and executive chairman Ben Verwaayen -- will be given the option to receive the two-year-salary-plus-bonus money in payments over a two-year period if they choose to leave their posts within six months of the hiring of a new CEO, if their reporting relationship to CEO Schacht changes, or after April 22, 2002 (the date of Schacht’s 18-month tenure in his current position).

”This enhanced retention arrangement ensures that the incentives for senior management to remain in leadership positions within the company are greater than the benefits they could receive under a self-initiated severance arrangement,” Lucent’s documentation says.

Despite these arrangements, Lucent’s set to lose at least one of its top executives. Early in December, the company announced that Ben Verwaayen had accepted the post of chief executive of British Telecom (BT) (NYSE: BTY) and plans to become CEO there in February.

Terms of Verwaayen's severance arrangement are still being worked out, spokespeople say. On the table are a range of items Lucent ceded to Verwaayen to get him to sign on at Lucent in 1997, including a $1 million mortgage loan guarantee, more than 300,000 stock options vesting in 2002, and a "customized" pension that will total $1,300,000 annually after Verwaayen, 49, reaches age 60.

In sum, Lucent had one of the worst years in corporate history, and it's clearly not out of the woods yet (see 2001 Top Ten: Financial Stories). Still, management continues a long tradition of sizeable compensation. The situation was summed up well by Henry Schacht in a note to Verwaayen about the company's new severance policy, dated February 14, 2001: "Challenging times can be the most satisfying and rewarding times of our professional lives."

At Lucent, that's clearly the case.

— Mary Jander, Senior Editor, Light Reading
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gea 12/4/2012 | 11:07:12 PM
re: Lucent Execs Get Richer Optigirl:
You normally talk some cold, hard sense, but not this time. Take a look at those numbers again.
One major problem apparently when European firms merge with bi American firms is that the Americans are compensated something like an order of magnitude greater than their European counterparts.
The notion that these people need to be compensated at these levels is just plain wrong. Funny, if you get to know some of these people you'll be shocked and dismayed at how clueless many of them are about the industry, technology, and business. These people have created a giant "club" (as Beezlebut calls it) that sheilds them from any kind of consequence, even when it becomes clear that they have made ferociously incompetant decisions, decisions that not only lose money, but that cost many workers their jobs.
The fact that European and Japanese companies don't even approach these compensation levels tells you something.

Remember, you only need a year or two at these levels to be set for life...then you really don't give that much of a crap because you've got so much in the bank. If one of these guys knew he'd have to sell off his home in the Hamptons if he had a bad year, well then he'd at least care. Remember, Rich McGuinn was a paid advisor to a startup that made a product that competed with one being developed by Lucent.

I'm sickened by how faithless these companies are to their workers, and this proves how bad things stink up there.
optigirl 12/4/2012 | 11:07:12 PM
re: Lucent Execs Get Richer Wake up, Mary! Who in their right mind would work at LU if there wasn't something in it for them, especially in light of the mess that company is in? Do we expect them to work for nothing?

Sure, it sucks that certain people get paid no matter what they did but the fact remains, you have to be willing to pay to keep an executive team in place to see through the transition. (provided they make it, of course) What would be the impact of more senior level defections?

This story reminds me of the local newspaper that complains that the city council voted themselves a $500 raise.....
Belzebutt 12/4/2012 | 11:07:12 PM
re: Lucent Execs Get Richer Clearly, the reason why this ridiculous situation is possible is that execs and board members in America are all part of a club. They all give each other high salaries, supposedly justified by some kind of "professional risk" which obviously doesn't exist since all these people still have high-paying jobs after last year.

It's a little corrupt club that any of us would just love to be part of.
manoflalambda 12/4/2012 | 11:07:11 PM
re: Lucent Execs Get Richer Hey all,

What really sucks is the realization of the peons, that those 7 figure retention bonuses could have saved people and projects in the 01/02 timeframe. Product lines had been shaved to the bone, saving 1M here and there (as budget wasn't available), and now that $ goes to O'Shea, Holder et al.

One would think that if they (the execs) had some faith in the company, they would forgo the retention monies to keep some jobs and products alive. Don't you just love how Lucent starts a new year with yet another mountain of bad press?

optigirl 12/4/2012 | 11:07:11 PM
re: Lucent Execs Get Richer I don't concern myself with the amounts. I just look at things practically....people who live in a capitalistic world get paid more than those in socialistic or however you would define the Asian world. The market dictates what you can have.

I stand by my point, why should anyone worth their salt stay at LU if there is no reward for succeeding? If you have cling-ons and hacks then they "shouldn't" be paid, much less be there at all but if LU's board and shareholders are willing to pay these sums then that is their choice. Let everyone involved reap their just rewards.

The workers issue is another matter. Being a non-socialistic, non-communist, right leaning, non-liberal, I believe that your boss(es) owe(s) you nothing more than your agreed upon wages. If you don't like management or if you are not being afforded your desired level of respect, consideration, etc. then you should leave and go to where the grass is greener. Let's not forget that the poor workers were making inflated salaries and demanding more and more when times were good. Life has a way of balancing itself out over time. (or you ultimately get exactly what you deserve)

We are a society that rewards success. European culture allows people to take an entire month off, has unions running the show and does not allow companies to get rid of dead weight. There is a ton of socialism, which has proven to be ineffective for economies.

I choose to have my money in some Lucent stock. I have no problem if executives make a ton of money making my share values go up.

jj388 12/4/2012 | 11:07:11 PM
re: Lucent Execs Get Richer Optigirl, you could randomly shoot an arrow into a Lucent cafeteria, and take whoever it hits and give them O'Shea's job, and Lucent would be better off. Even if the person hit by the arrow is dead.

Paying that dummy all that money is crazy. Lucent could dump him, as well as Holder and the others, and replace them ALL with better executives at half the price. This of course doesn't even address the issue of the next level down, all the riff raff among the product unit managers.

Lucent would be very well served by cleaning house at the top, and much of the second tier. Of course, that would require a REAL new CEO, not this permanent-temporary thing going with Schacht. What Lucent needed about, oh, three years ago (when everybody on earth, it seemed, except the Lucent BoD knew that McGinn was a jerk) was a new CEO to kick McGinn out the door and start chopping heads: at the TOP. Not all the poor schmucks at the low end that pay the price for McGinn's idiocy and the rest of them.

There was no reason at all that Lucent shouldn't have been THE dominant player in all their spaces. No reason other than massive failures at the top. Not to mention that Lucent should have been the GE of tech. A highly diversified company pumping on all cylinders. The Avaya sale was really the first red flag. They threw out a steady business -- not super growth, but lots of money coming in -- because it couldn't meet McGinn's insane growth projections, which were no more than an extension of his ego.

What prevented Lucent from being a leader in enterprise call centers, enterprise cabling, fibre optic cabling, telecom of all kinds, networking of all kinds, OSS, components and services? They had all the pieces to lead in all these spaces, but this particular fish rotted from the head. And still does.
optigirl 12/4/2012 | 11:07:10 PM
re: Lucent Execs Get Richer I recall seeing an interview with the CEO of Siemens who compared the differences that his company faced versus that of US companies. He complained about labor unions and the inability/great difficulty in getting rid of people who don't perform. I can still call people in the summer and find that they are out for an entire month.

Don't get me wrong, different strokes for different folks. And besides Steve, you Brits have always been different than the continentals....

Steve Saunders 12/4/2012 | 11:07:10 PM
re: Lucent Execs Get Richer "European culture has unions running the show and does not allow companies to get rid of dead weight."

I don't know when you were last in Europe but times have changed, to say the least.

wdog 12/4/2012 | 11:07:10 PM
re: Lucent Execs Get Richer Well spoken optigirl
optigirl 12/4/2012 | 11:07:10 PM
re: Lucent Execs Get Richer I don't disagree with your points...but there is another issue to look at here and that is the cost of DIVORCE. When the market was racing, people were given jobs and also commanded compensations that they would not get today. Having to get rid of them means you get stuck paying the tab for bad management decisions like getting rid of a bad spouse or very much like in professional sports where you have that dreaded salary cap. There's nothing that you can do but pay the bill and learn your lesson.

I have no insider knowledge of the current executive staff but the amounts listed in the article are pretty standard at the senior executive level.
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