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Lucent's Fat Cats Get Fatter

Yes, it's time for our annual Lucent Technologies Inc. (NYSE: LU) fat cat story (see It's Christmas Time at Lucent and Lucent Fat Cats Gorge in 2002), and the vendor's compensation committee hasn't let us down with this year's bonus awards, handing chairman and CEO Patricia Russo more than $13.6 million in cash and stock.

According to a filing with the Securities and Exchange Commission (SEC) announcing Lucent's 2005 annual general meeting on February 16 in Wilmington, Delaware, "fiscal 2004 was a year of outstanding progress and strong accomplishments across a number of critical fundamentals."

Indeed, Lucent unveiled a profit for its full financial year (ending September 30 2004), its first in four years (see LU Finds New Revenue).

And it has been landing some impressive next-generation network deals, and looks well placed to further benefit from wireless operator consolidation (see Wireless Merger Favors Lucent, Nortel, Lucent Grabs Cingular Action, and Lucent Linked to More Cingular Booty).

Lucent's share price is healthier as a result. At a closing price of $3.78 yesterday (valuing the company at $16.7 billion), Lucent's share price is 32 percent higher than a year ago, when it stood at $2.88.

In the SEC filing, the compensation committee notes that it, and the company's board, "are proud of Lucent’s performance during 2004 and believe that the results achieved are due to the caliber and motivation of all employees and the focus provided by Lucent’s senior leaders."

All of which spells good news for Russo's bank balance. The table below shows her total compensation in 2004 came to more than $13.6 million. That includes a annual cash bonus of $2,950,000, about 2.5 times her base salary.

The size of Russo's annual bonus, states the compensation committee, is "in recognition of the company’s performance and her role in driving those outstanding results."

The table also shows that Russo isn't the only person pulling in multi-million dollar bonuses. CFO Frank D'Amelio ends 2004 more than $6 million to the good.

Table 1: Lucent FY 2004 Salaries, Bonuses & Options
Name Position Salary FY 04 Annual Bonus FY 04 Restricted Stock Award Stock Options Granted
Patricia Russo Chairman, CEO $1.2 million $2.95 million $4.8 million 2.5 million, valued at $4.58 million
Frank D'Amelio CFO $662,500 $4.2 million None 1 million, valued at $1.83 million
James Brewington President, Developing Markets $550,000 $3.06 million None 650,000, valued at $1.19 million
Janet Davidson President, Integrated Network Solutions (INS) $550,000 $3.06 million None 650,000, valued at $1.19 million
Bill O'Shea President, Bell Labs $700,000 $2.86 million None 700,000, valued at $1.282 million
Source: Lucent SEC filing




The compensation committee is gushing in its praise of Russo. It says that under her leadership, "Lucent is positioned to be the industry’s thought leader in next-generation convergence, with the company growing or maintaining share during 2004 in a number of key product segments that should enable further growth and expansion at or above the overall market rate over the next few years."

It adds: "In addition, Lucent improved customer satisfaction results for the year, achieved increased employee engagement results in several key areas, and strengthened the leadership team through strategic hiring and various management development initiatives."

But there are concerns about whether Lucent can maintain its run of positive financial form, given the vendor's reliance on pension credits to bolster its bottom line (see Lucent Numbers Raise Pension Question).

Unsurprisingly, the company's pensioners aren't too happy about the size of the executive bonuses. A representative of the Lucent Retirees Organization told New Jersey newspaper The Star-Ledger that the vendor's senior executives are getting bonuses that "most retirees feel is beyond reason, based on what has happened to the retiree benefits."

The retirees have seen their health benefits cut in recent years as Lucent has looked at all ways it can cut its costs, and is seeking an investigation into the company's pension fund (see Lucent Cuts Retiree Healthcare, Lucent Retirees Get the Schacht, and Lucent Retirees Ask SEC for Help).

— Ray Le Maistre, International News Editor, Light Reading

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lastmile 12/5/2012 | 12:57:40 AM
re: Lucent's Fat Cats Get Fatter sigint:
There are fat cats everywhere.
DAL,UAL are examples of fat cats outside the telecom industry.
Everyone is an eye specialist! This means that 'I' am more competent than the others and I miss being in their shoes because I would love to be a fat cat.
Please remember that fat cats are a chosen few.
I wish I could replace just one of them but I know that it is impossible.
sigint 12/5/2012 | 12:57:40 AM
re: Lucent's Fat Cats Get Fatter sigint:
There are fat cats everywhere.
DAL,UAL are examples of fat cats outside the telecom industry.
Everyone is an eye specialist! This means that 'I' am more competent than the others and I miss being in their shoes because I would love to be a fat cat.
Please remember that fat cats are a chosen few.
I wish I could replace just one of them but I know that it is impossible.
__________________________________________________
Yeah, it would be great to be one of 'em, wouldn't it? :-)
Seriously now, it's time that the benevolent form of corporate leadership became fashionable again. I doubt if the capitalist system was ever *designed* to be a major league disruptive force for employees. That it has emerged to be that must be termed an accident of history.

sigint 12/5/2012 | 12:57:43 AM
re: Lucent's Fat Cats Get Fatter lastmile:
LU has done well. LU was a .44c stock just a few years ago. Lucent's fat cats did it. They need to get fatter.
Relax and wait!
__________________________________________________
Basically, they rode the market. It doesn't take great genius to bob along with the market. The level of compensation we are discussing could have been justifiable had they outperformed the sector or taken market share from their competitors. None of that seems to have happened.
Mr. Mutt 12/5/2012 | 12:57:46 AM
re: Lucent's Fat Cats Get Fatter "I often drive by the former office of a late 90s FO start up that turned over 200 million dollars of funding into nothing. Near that building is another that functioned as the satellite office of another FO start up that did the same thing with just under 200 million. Just down the road from them is the building of another FO start up that did not do as well. It was able only to turn 40 million into nothing before its funders pulled the plug"

Are you surprised? In the boom there was over $7B/quarter going into startup companies in the Bay area alone. I don't see billions of dollars of new companies around here anymore (though I do see billions of dollars in vacant commercial real estate!)

Caspian has gone through $400M+, did a $12M washout round, and isn't close to positive cash flow as far as I am aware. Palm ate $100M by not developing the former 4th and 5th holes of Santa Clara golf course into the corporate HQ they planned for. It's dirt now, old Palm building is empty in favor of rented Cisco buildings, and 3Com campus is now Magma/Marvell and someone else. Bay Area: the most insane waste of billions of dollars I've ever seen.
geof hollingsworth 12/5/2012 | 12:57:47 AM
re: Lucent's Fat Cats Get Fatter No problem-couldn't resist yanking your chain a little bit. They used to be our firm as well.

Best wishes for a Happy New Year, my freind.
DarkWriting 12/5/2012 | 12:57:48 AM
re: Lucent's Fat Cats Get Fatter Let's cut through the BS and get to some hard numbers (I thought there were some engineers on this site!) The founders at the startup where I worked were making no more than $200K per year and I felt that was about right for what they did. These guys did not know how to grow a company. That came from the VCs on the BOD and they only learned it by seeing what was working at other startups. Perhaps the fact that nobody on this board will put out hard figures about executive salaries unless it is from the annual report is a clue why this whole process is so out of whack.

I would love to be in a situation where I sat around and read balance sheets (prepared by someone else, BTW) to determine which divisions weren't making money, cut them and make $14M per year. Folks, it's not like these people did all the work themselves! No one is worth this kind of money no matter how much or by what method you polish the turd.

DW

douggreen 12/5/2012 | 12:57:48 AM
re: Lucent's Fat Cats Get Fatter "I essentially agree, but I would change your last sentence to: Some are worth it, but most are not."

I try not to make quantifying statements like "most" unless I have a good enough statistical sample to make a generalization. I've worked at 4 startups and seen some good leaders and some bad, but I woulc not extrapolate that experience to the general market (My experience has probably been better than most).

As far as the ones that I read about... You only hear about the extreme cases on both sides (failures and superstars).
whyiswhy 12/5/2012 | 12:57:49 AM
re: Lucent's Fat Cats Get Fatter Brobeck...er, my bad. Force of long habit. I've dealt with a couple of attorneys who happened to be at Brobeck for many years. Yes, the firm hit the wall. These gentlemen didn't. They landed softly at OMM.
Stevery 12/5/2012 | 12:57:49 AM
re: Lucent's Fat Cats Get Fatter > douggreen longish (but well written) reply

There are 2 issues running on the thread, I'm going to separate them:

1. Compensation of startup execs
2. Compensation of Pat Russo

Regarding Pat, the announcement of her compensation was the straw that caused me to sell LU shares. If you get rewarded for screwing a bunch of powerless old people in order to turn your company into cash flow positive, you are not a leader. Moreover, the company is in trouble, and many of the employees that were going to pull it out of that trouble are now demoralized.

If she thought she was actually turning this ship around, she would have used the symbolic gesture of taking $1 salary, knowing that her real bonus would come back to her with plenty of interest.

Regarding startup execs:

Doug said: Most of the larger salaries come when the company is more mature and hires executives beyond the founders (the second and third CEO, the VP of sales who comes with the big rolodex, etc.) Some are worth it. Some are not.

I essentially agree, but I would change your last sentence to:

Some are worth it, but most are not.


PS to CLG: Belated thanks for your reply. My cynical eye read your post as: There are new hoops that unethical people must jump through to CYA.

I was hoping for something more like: The CEO asked for the resignation of everybody in dept xxx. (Or some other public hanging.)
technoboy 12/5/2012 | 12:57:50 AM
re: Lucent's Fat Cats Get Fatter Post 24

In a letter sent recently to several retirees, Russo compared herself and her senior leaders indirectly with Chambers:

quote:

"Some have suggested that token cuts should be taken by the senior people as a gesture; others have pointed to executives who take $1-a-year in compensation.

* Token cuts may be viewed positively by some as offering psychological benefits but if maintained over time, they result in pay becoming non-competitive with all the risk that this entails.

* Executives who have chosen to take only $1-a-year in pay have generally done so in instances where a temporary crisis exists. This level of compensation is held for a short period and competitive compensation is restored as the temporary crisis passes."

Translation: "Lucent is in a permanent crisis and you must be really dumb to expect me and my buddies to take a buck-a-year."


Technoboy:

This post pretty much encapsulates the whole issue in my view. I think flam has the translation correct. Basicallly I am going to get mine while I can and screw you!!! Everything else stated in this thread about comparing Pat to Carli to John to whoever is basically whip cream on dog shit!!!!
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