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Optical/IP

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

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!!!!
douggreen 12/5/2012 | 12:57:50 AM
re: Lucent's Fat Cats Get Fatter "THe founders should live like students..."

Many of them do...spending most of their time in a one room apartment (their offices), eating take-out food, etc. Most of them paid their own way for months prior to getting funding. However, they are NOT students. They have families. They have lives outside of work, even if they don't get to take part in that life for a few years.

I want a CEO/CTO/VP who is focused on work, not one who's spouse is riding him or her about their standard of living, or one who is worried about how his or her kids can pay for school.

In my experience, most (but not all) founders founders take a reasonable salary and are very concerned about cash burn. 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.

What you are suggesting is a "one size fits all" formula for all people. Some great companies were founded by starving students, but many were not.

It IS important to distinguish founders from those who come on after the startup is 2 years old. In most cases, the earlier execs are taking a greater risk on an unproven company, and have more invested personally in its success. By nature they are more willing to trade off salaries for equity. Those who come later join at a time when there is likely to be less percieved risk. In many cases they are less likely to be willing to take as much risk and less likely to forgo salary for equity.

With respect to public companies, what seems out of balance is the combination of large salaries with large equity positions. Execs can run companies into the ground, have their equity worthless, and still walk off with tens of millions in salary. At the same time, if the company does well, they walk off with hundreds of millions. There is little to no tradeoff in risk/reward.

Regarding Lucent... I don't think the salaries are out of line at all if the execs are doing their jobs. If they are, the salaries are fine and at the low end of the industry. If they are not doing their jobs, they should not have their bonuses reduced. They should be fired.

I understand the emotional issues from retirees and former employees. As a stockholder, however, I don't feel any better if incompetent leaders aren't paid very much and don't get bonuses. I also don't feel better if the company saves money on execs but fails to attract those who can turn the company around. The issue is performance and accountability, not salary.
dljvjbsl 12/5/2012 | 12:57:51 AM
re: Lucent's Fat Cats Get Fatter
How many FO startups in the late 90's funded by VC's are you aware of who started with no salaries after round 1 or for that matter during angel funding?


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
geof hollingsworth 12/5/2012 | 12:57:51 AM
re: Lucent's Fat Cats Get Fatter As to the liability issue, what kind of executive employment agreement(s) are you signing? Who the heck is your attorney? Fire him/her. I can personally recommend the guys at Brobeck (on Sand Hill) to you.

Hmmm. I wonder if providing advice like this is responsible for Brobeck being among the non-survivors. In any event, I think you need to update that rolodex (and get yourself a new law firm).
allidia 12/5/2012 | 12:57:52 AM
re: Lucent's Fat Cats Get Fatter How many FO startups in the late 90's funded by VC's are you aware of who started with no salaries after round 1 or for that matter during angel funding?
lastmile 12/5/2012 | 12:57:52 AM
re: Lucent's Fat Cats Get Fatter 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!
http://www.lightreading.com/bo...
dljvjbsl 12/5/2012 | 12:57:53 AM
re: Lucent's Fat Cats Get Fatter
Unlike John Chambers, who could retire today, not earn another cent the rest of his life, and still live like a king, some founders actually need to have a salary to live


The founder should live like a student and extract only the minimum amoount of cash that he needs to live on. A reasonable salary for a single founder would be just at minimum wage if not below.

Consider shareholders in most tech companies. Any cash genrated by the company is not distributed by way of dividends. Instead all shareholder cash is reinvnested in the business. The same should be true of a start up and its founders.
technoboy 12/5/2012 | 12:57:53 AM
re: Lucent's Fat Cats Get Fatter allidia:

Allidia the problem with your statement is that you call a company that needs to justify their existence by giving out advice on executive level salary. Not exactly objective!!!! Next time you need advice go consult the magic eigtht ball. Score is probably using the same thing. I know many startup companies where the founder takes no salary and all have done quite well for themselves with the exception of one. Have a nice night!!!!
sigint 12/5/2012 | 12:57:54 AM
re: Lucent's Fat Cats Get Fatter A founder-CEO who decides to work without pay is likely to be someone passionate about the concept. Is that always a good thing? Isn't there a schoold of thought which advocates against such passion?

Comments would be valuable.

thanks,
sigint
douggreen 12/5/2012 | 12:57:54 AM
re: Lucent's Fat Cats Get Fatter "Why would anyone do this?"

Unlike John Chambers, who could retire today, not earn another cent the rest of his life, and still live like a king, some founders actually need to have a salary to live. Otherwise, only independently wealthy people could start companies.

If someone is in a position to fund their own company and not take a salary, great. But don't force everyone into the same mold.

In my last two startups, my experience was that the CEOs and other executives, while not working for free, were very careful with money, including executive salaries. Everyone understood that the longer the money lasted, the longer we could go without additional funding. THe longer time between funding meant higher valuation and greater value for our stock options.

In my positions in startups at the director and VP levels, I often made less than the top engineers and had no problem with that. I ALWAYS made less than the top sales people and had no problem with that either.
allidia 12/5/2012 | 12:57:54 AM
re: Lucent's Fat Cats Get Fatter You must be from West Coast "like the person" refers to original poster"
optical_man 12/5/2012 | 12:57:54 AM
re: Lucent's Fat Cats Get Fatter "I looked into starting a company and salary was discussed and like the person seeking an answer I thought by waiving a salary it would appear like I was more committed to the success of the company. In no uncertain terms the answer was absoultely not. ........ Call SCORE for yourself. Rookie."

allidia,
Like, he's not, like, a rookie. Did SCORE, like, tell you that Valleygirl speak is, like, not going to secure funding for a start-up?
dljvjbsl 12/5/2012 | 12:57:55 AM
re: Lucent's Fat Cats Get Fatter
a) Preferred share issues are typically labeled by classes: A, B, C, etc. Common keeps the same label


It is not uncommon to have multiple classes of common shares. Some of these shares have rights to mulitple votes, anti-dilution etc.


b) Employees, officers and directors get options on common shares which cost them nothing until excercised. Try actually reading a proxy of a public company. It is called a DEF14


Cronies of management (and managment itself) are often allowed to purchase special classes of shares that have rights beyond that available to the public and employees. Anti-dilution is one right that I have had personal experience with.


c) All shares vote, options don't. You can't vote the rights of share of a stock unless you own it


Someahres vote more than others which in some cases makes the voting rights of other shareholders moot. In some companies (at least in Canada) some shares have no votes at all


d) Public companies in the technology business almost never, ever have any other share class other than common. Why? no one pays dividends (the usual reason for having preferred shares)!


Someahres carry rigths for anti-dilution protection as one example.

dljvjbsl 12/5/2012 | 12:57:55 AM
re: Lucent's Fat Cats Get Fatter
In regard to salary surveys for CEO and other executive compensation with the point that they act as a one way ratchet to increase CEO salaries


a) These are the same surveys which set the pay ranges for everyone, not just the execs. The same arguments apply for everyone


This has been an issue that I have seen discussed in the press many times. The ease with which sweet heart consultants can be used to make the recommendations that boards want to hear is well known. After the boards will be selecting which consultants to use and board members are commonly CEOs and senior executives of other companies. A nod is as good as a wink, as they say.
dljvjbsl 12/5/2012 | 12:57:55 AM
re: Lucent's Fat Cats Get Fatter A person is building a start up which is typically short of cash. Instead of the cash staying in the buiness where it can be used productively, the founder takes it out in the form of salary and expenses to pay for personal consumption.

Why would anyone do this?
allidia 12/5/2012 | 12:57:56 AM
re: Lucent's Fat Cats Get Fatter I did. It's called Service Corps of Retired Executives (SCORE). It's a non profit organization that helps with everything from writing a business plan to seeking funding. Retired CEO'S, CFO'S etc volunteer to help. I looked into starting a company and salary was discussed and like the person seeking an answer I thought by waiving a salary it would appear like I was more committed to the success of the company. In no uncertain terms the answer was absoultely not. A reasonable salary is expected when you are seeking outside funds. It is considered a rookie mistake not to have salaries for the founders and exec's. Call SCORE for yourself. Rookie.
whyiswhy 12/5/2012 | 12:57:56 AM
re: Lucent's Fat Cats Get Fatter FWIW: My opinion...

It depends on your and the start-up's circumstances and your investors...it should balance.

If you have no exectutive experience, do not expect to be compensated like you do, and moreover, do not expect to be in the position long. All the stakeholders (including you) will benefit from having the best people you can get in all the positions up and down the ladder. With no experience, that's not likely to be you. Get accelerated vesting for when your replacement happens, and start the CxO recruitement process day one.

If you have some experience, even losing experience, it's better than none. Most VCs will tell you honestly they far prefer bad to none. You are worth more, so you can expect / negotiate for more. If you have experience, you know all is fair in love, war and business. You know the job is "risky" and there are no promises that mean anything if they are not written down.

If you have a lot of experience, why are you playing around with start-ups, other than as a hobby? You will almost certainly be asked to invest, and to forego most if not all your salary. It's a hobby-job, or a lifestyle-job, whatever you want to call it. In that case, you get preferred stock, plus maybe some milestone based vesting schedule as your "salary".

-Why

deauxfaux 12/5/2012 | 12:57:57 AM
re: Lucent's Fat Cats Get Fatter Flam

I was also not a career LU employee

On your question: here are a couple of thoughts

Pat is Henry's lap dog and wouldn't change copier paper supplies without asking for permission.

O'Shea and his peers are the most skilled politicians I have ever encountered and are so disconnected from reality that they have no real impact on the business.

IMHO, they are all ballast.

DF
whyiswhy 12/5/2012 | 12:57:57 AM
re: Lucent's Fat Cats Get Fatter Deaux sed:

"Your points about "Cowperson" execs is certainly true. But you really ought to read Sarbanes Oxley, if your attorneys think that they can absolve you of the liability for this, you should fire them. All it would take to land you in trouble is one bad apple. In the startup world, this isn't a problem. But in my world it is.

I'll take you at your word that you've done all of the things you've said. Maybe being an exec should be easy, but it isn't. I work more hours than my people, take responsibility for the mistakes of the organization and never forget who I work for: my shareholders."

Thank you. Good luck to us all in the coming new year.

I should have mentioned that one of my former corporations were/are public, and I currently work at a medium sized publicly traded corporation. I do not lose a minute of sleep over Sarbanes Oxley; I have always run things conservatively, and I at least "sanity check" my subordinates work.

As CxO, I consider myself an employee of the board, nothing more. With all due respect, you need a compass adjustment: the board has fiducial (and moral) duties to ALL the corporations' stakeholders: shareholders, lenders, employees, suppliers and customers. In about that order. To forget that is to invite trouble.

As to your comments about how hard you work: I too open and close the doors around my place of employment. So what? Comes with the territory. I have hourly employees matching me and then some. They make this place profitable. I only steer the ship (power steering), they do ALL the rest.

I never forget that.

-Why
flam 12/5/2012 | 12:57:57 AM
re: Lucent's Fat Cats Get Fatter Thanks for responding.

I'm curious to get your view on the whole Lucent leadership structure.

For us grunts it always appeared very political - you could not get to be a Lucent E Level unless you were well connected. (Or via an acquisition, in which case you left after a few months.)



flam 12/5/2012 | 12:57:58 AM
re: Lucent's Fat Cats Get Fatter You came to Lucent Microelectronics via an acquisition, yes?

deauxfaux 12/5/2012 | 12:57:58 AM
re: Lucent's Fat Cats Get Fatter No
deauxfaux 12/5/2012 | 12:57:58 AM
re: Lucent's Fat Cats Get Fatter Happy Holidays to you.

So you are a CxO and are making the same money as any of your engineers? ROTFLAMO.

Your points about "Cowperson" execs is certainly true. But you really ought to read Sarbanes Oxley, if your attorneys think that they can absolve you of the liability for this, you should fire them. All it would take to land you in trouble is one bad apple. In the startup world, this isn't a problem. But in my world it is.

I'll take you at your word that you've done all of the things you've said. Maybe being an exec should be easy, but it isn't. I work more hours than my people, take responsibility for the mistakes of the organization and never forget who I work for: my shareholders.

Maybe that makes me unusual, but I don't think so.

DF
technoboy 12/5/2012 | 12:57:58 AM
re: Lucent's Fat Cats Get Fatter allidia:

What a load of Crap!!!! At least give some kind of evidence to that statement!!!
whyiswhy 12/5/2012 | 12:57:59 AM
re: Lucent's Fat Cats Get Fatter Cool:

See my previous message.

-Why
whyiswhy 12/5/2012 | 12:57:59 AM
re: Lucent's Fat Cats Get Fatter Deux sed:

"Why, I just can't figure out how such an intelligent person can see such huge conspiracy theories in everything.

Execs bear a huge responsibility and incur huge liability in the work they do. They can be fined and sued for the mistakes of others (see what happens if you miss filing for a CUPA permit, or if a low level supervisor decides to sexually harass a fellow employee). They are constantly under public scrutiny and are publicly second guessed and/or lampooned by everyone with an opinion; whether they know anything or not.

As for compensation. No exec pays themselves. I've served on 3 different Board compensation committees and I can tell you definitively that we pay for extensive compensation surveys, do our own due diligence, and take the majority of our compensation in stock options. I personally invest in the companies whose boards that I serve on. Guys like me take this all very seriously and are disgusted by comments like yours, which aren't worthy of an intellect like yours."

First, happy holidays to you!

I have been COB in my own corporation, have been CxO (variously E, T and F) at other corporations, currently serve on two boards of directors, and one technical advisory board.

Having said that, I can say with the confidence that comes from many years of experience: execs who get into trouble deserve it. I have never, repeat, never, seen any exec get into trouble who had not been warned multiple times. Show me a case where that was not true. One.

The typical exec who gets into trouble is a "cowboy/cowgirl" who does not consult with or listen to his/her other board members, and especially not to her/his corporate counsel. They are the type who push the envelop of legality (let alone morality) until it breaks. And in so doing, they screw up not only their own careers but their associates too. I say: hang 'em higher and longer. Let their corpses be a warning. History shows it's the only thing that deters such behavior.

With regards to the lampooning: grow up. All leaders get lampooned. It comes with the territory. It's been my experience that it can be dealt with largely by telling the truth. My motto has always been: open books, open office, open mind, close mouth. I have never had "the rumor mill" in operation over a month, and not turned it to my advantage.

As to the liability issue, what kind of executive employment agreement(s) are you signing? Who the heck is your attorney? Fire him/her. I can personally recommend the guys at Brobeck (on Sand Hill) to you. Your agreement should virtually absolve you of legal costs the D&O insurance doesn't cover (asside from outright felony behavior). Mine do: if I can manage to avoid murder and/or rape, I am 100% covered. Not a dime out of my pocket.

Compensation surveys? ROTFLAMO! How much pay do you want to justify? Buy it by the yard! It's toilet paper. There is no, repeat, no reason to pay an executive more than say his/her best engineer or sales person. Acutally, the engineer and sales person should get higher pay than the execs, if they are doing their jobs.

Being an exec is easy, or should be. If the exec does his/her job right, the place runs on "auto-pilot" at "warp-speed". An exec should recruit the world's best under him/her, and reward them for results.

I do however like your comments about taking stock compensation and commend you for putting your money into the company you work for. But just to be clear, most "commoners" do that too: it's called ESPP. As a percentage of their "spendable" income or fortune, some of them are taking a bigger risk than you.

-Why
deauxfaux 12/5/2012 | 12:58:00 AM
re: Lucent's Fat Cats Get Fatter This deserved a second reply to provide a little more color on your lack of knowledge

a) Preferred share issues are typically labeled by classes: A, B, C, etc. Common keeps the same label

b) Employees, officers and directors get options on common shares which cost them nothing until excercised. Try actually reading a proxy of a public company. It is called a DEF14

c) All shares vote, options don't. You can't vote the rights of share of a stock unless you own it

d) Public companies in the technology business almost never, ever have any other share class other than common. Why? no one pays dividends (the usual reason for having preferred shares)!

e) Even when preferred share classes exist, no special voting rights exist except in the most bizzare cases (e.g. the Ford family, or the unusual way that AGR was spun off to avoid taxing shareholders).

So what are you anyway, some ex UAW union electrician who believes the union venom? Must be something close, 'cause you sure don't know what you are talking about.

DF
deauxfaux 12/5/2012 | 12:58:00 AM
re: Lucent's Fat Cats Get Fatter a) These are the same surveys which set the pay ranges for everyone, not just the execs. The same arguments apply for everyone

b) I've never seen a case yet where this has happened and I actually do this for a living. Common shares and options are the tool used by nearly every company.

You're just another guy with an opinion. While you're entitled to it, you clearly don't actually know anything about the subject.

DF
keelhaul42 12/5/2012 | 12:58:01 AM
re: Lucent's Fat Cats Get Fatter Hello Sigint:
The key, I would think, is locating the 1% amongst us that are black sheep, throwing them out, and keeping them out.

I don't think we have been able to do that successfully. The same scamsters reappear in another avatar, to fool everyone yet another time.
>>>>>>>>>>>>>>>>>>>>>>>>
Agreed, nor do I expect we'll be able to do so any time soon. They are sooooooooooooo clever ...

-kh
allidia 12/5/2012 | 12:58:01 AM
re: Lucent's Fat Cats Get Fatter A CEO not taking a reasonable salary is a sign of weakness and would be seen that way by potential investors. Contact SCORE in your state for free professional advice. They will tell you about how much $$ is right. Good Luck
dljvjbsl 12/5/2012 | 12:58:02 AM
re: Lucent's Fat Cats Get Fatter
I can tell you definitively that we pay for extensive compensation surveys, do our own due diligence,


This use of surveys really means that if the CEO of company ABC gets a raise then the CEO of XYZ must get a similar raise which means that the CEO of ABC must get a raise which means that the CEO of XYZ must get a raise which means that......


and take the majority of our compensation in stock options.


Of course with the CEOs of ABC and XYZ get raises this means that the CEOs of DEF and UVW must get special bonuses of Class A dilution-protected voting stock as compensation in preference to the Class B worthless wall paper stock that other employees were encouraged to buy by the company with after tax retirement savings dollars.

This
rthal 12/5/2012 | 12:58:02 AM
re: Lucent's Fat Cats Get Fatter CoolLightGeek, most of what you said makes sense except for your assumption that free market is at play when it comes to CEO compensations. When Mr. A gets to determine Mrs B salary and in turn B gets to determine A's salary or other influences at Mr. A's company, that's not pure free market. It's a corrupted and broken system that can manage to reward a CEO over 100 millions of dollars a year in the case of the NYSE. It's a corrupted and broken system that if not fixed will actually dooms the capitalist system in the U.S., turning it into an aristocratic system or something worse. If not fixed internally, it will be fixed by foreign competition. An out of balance executive compensation in a weak company will accelerate its decline, not improving it. Lucent is a dying company in the face of all competition around it.
dljvjbsl 12/5/2012 | 12:58:02 AM
re: Lucent's Fat Cats Get Fatter
How much salary should the CEO Of a start-up pay her/himself? What factors need to be considered? Would the $1 a year kind of tokenism impress investors and employees? Do customers take into account these sort of things?


I know of one successful serial entrpeneur in this position. He does not even charge his expenses to his start ups let alone pay himself a salary. Any money that a start up has should be used by the business and not to pay slaraies to the founders.
sigint 12/5/2012 | 12:58:03 AM
re: Lucent's Fat Cats Get Fatter deaufaux:
99% of us aren't on the take. Neither are 99% of the doctors, lawyers or engineers in the world.
__________________________________________________

The key, I would think, is locating the 1% amongst us that are black sheep, throwing them out, and keeping them out.

I don't think we have been able to do that successfully. The same scamsters reappear in another avatar, to fool everyone yet another time.
deauxfaux 12/5/2012 | 12:58:04 AM
re: Lucent's Fat Cats Get Fatter Why, I just can't figure out how such an intelligent person can see such huge conspiracy theories in everything.

Execs bear a huge responsibility and incur huge liability in the work they do. They can be fined and sued for the mistakes of others (see what happens if you miss filing for a CUPA permit, or if a low level supervisor decides to sexually harass a fellow employee). They are constantly under public scrutiny and are publicly second guessed and/or lampooned by everyone with an opinion; whether they know anything or not.

As for compensation. No exec pays themselves. I've served on 3 different Board compensation committees and I can tell you definitively that we pay for extensive compensation surveys, do our own due diligence, and take the majority of our compensation in stock options. I personally invest in the companies whose boards that I serve on. Guys like me take this all very seriously and are disgusted by comments like yours, which aren't worthy of an intellect like yours.

99% of us aren't on the take. Neither are 99% of the doctors, lawyers or engineers in the world.

DF
sigint 12/5/2012 | 12:58:04 AM
re: Lucent's Fat Cats Get Fatter Since some people listening on these thread may have had experience starting and running their own companies, this might be a good opportunity to discuss the subject.

How much salary should the CEO Of a start-up pay her/himself? What factors need to be considered? Would the $1 a year kind of tokenism impress investors and employees? Do customers take into account these sort of things?

Any comments would be useful. I hope someday to start my own company!

Thanks,
Sigint
CoolLightGeek 12/5/2012 | 12:58:04 AM
re: Lucent's Fat Cats Get Fatter So whyiswhy-
Do you work in a company that has execs?
Your rant about execs and politicians is amusing.
I suppose you did not like the results of the last election either.
Is "whyiswhy" an alias for "Ralph Nader"?
whyiswhy 12/5/2012 | 12:58:05 AM
re: Lucent's Fat Cats Get Fatter "Today, the typical engineer's employment options are narrow but not the typical exec's."

ROTFLMAO! What a hoot! You have obviously never been an executive, but are only a boot polishing butt kissing wanna-be.

The reason executives get paid well is they can pay themselves. They do that by buying the other board members off with a hefty cut. The employees, shareholders and pension holders get screwed.

Just like in Wash DC, Sacramento, etc.

-Why
Road Trip 12/5/2012 | 12:58:06 AM
re: Lucent's Fat Cats Get Fatter Competitive assumes that these managers could get a similar jobs elsewhere. One dollar a year sounds about right for the value being provided.

------------------------

>* 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."
flam 12/5/2012 | 12:58:07 AM
re: Lucent's Fat Cats Get Fatter 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 12/5/2012 | 12:58:08 AM
re: Lucent's Fat Cats Get Fatter CLG

I gave you the formula so basically asked and answered. Perhaps you would like to answers the questions posed to you rather than pontificating to the rest of us. Again with the comparisons to other execs ( not relevant). I submit that you already know this but somehow feel compelled to defend these C level execs in the name of free markets and capitalism. CLG we are not ignorant!!! We understand Capitalism!!! Nothing in what I have stated in any of my posts resembles socialism in any way. It is a rather simple concept. It also applies to any company not just LU. When things go bad and people are asked to sacrifice it is not unreasonable to expect that when things turn around those sacrifices should be addressed. Think outside of the capitalistic box!!! For all I know Pat Russo donates a lot of money to charity and that would be very admirable. Would not change my opinion one bit on whether or not those benefits should be restored that were taken away from the retirees. Oh by the way. The benefits get cut and then those retirees rely more and more on medicare which by the way you and I fund!!! While we do that Pat Russo and company can pretty much see any doctor and get any test they like. Are you suggesting that corporate responsiblity and capitalism can't co-exist? They can. I submit that what you are seeing is at least some of the negative aspects of capitalism. It breeds greed to some extent. Don't forget CLG that Russo and company have had some assistance along the way to back to recovery. Merry Xmas to all and to all good night

PS. Christians do not live two lives. They dont have a capitalistic view and a christian view. They just have one view (something most christians probably struggles with everyday).

TB
deauxfaux 12/5/2012 | 12:58:11 AM
re: Lucent's Fat Cats Get Fatter I was an E level at LU

Most of the guys I worked at E and above are, in fact, fools who don't deserve much of anything. This includes the currrent "stewards of the business." They are corporate "Neros" at best and disingenuous at the worst, but they are not thieves: the board is letting them get away with it. Shaq, A-Rod and Madonna aren't worth what they get paid either. But they made their money legally too.

So any of you that are whining: apply for a CEO job, or start singing, or playing baseball and find out how hard it is.

Are the retirees worth such lavish benefits: No. ATT management was stupid enough to reward everyone, thinking that monopoly profits would fund the gravy train forever. The UAW extracted similar arrangements from weak management and is getting the same results.

These are the hard facts of life

DF
big_daddy_cool 12/5/2012 | 12:58:12 AM
re: Lucent's Fat Cats Get Fatter As a ex-Lucent engineer, I am as upset anybody by all this money being taken from the piggy bank.

But after much suffering during the downturn, I have come to the realization that I am wasting my time being upset. I am sure the same is true for all of you. The truth is, as an engineer making a decent wage, had I saved a small sum ($3,000 per year) in an IRA/401K and invested more conservatively (shoot for 8-9% return), my net worth would have been in the $1-2 million range by age 70, as I started at 24. Good enough for me.

Instead I got greedy went to a startup that never made it, got a crappy severance (instead of a nice one if I got axed at Lucent). Because my tech-heavy (including of course that infamous Lucent Stock Fund) 401K and stock portfolio was destroyed by the bubble, the layoff inflicted an large financial and emotional strain that affected my job search. Fortunately, I was able to land after 18 months.

So my point is, it is OK to be upset with the way Lucent is managed at times. But if your lucky enough to be employed in tech in these times and still 25-30 years away from retirement, do consider fixed-income securities important to your overall strategy. And if you're every lucky enough to get an 8% yield from a bond (not happening soon) ... jump on it!!! ... And unless you have enough political savvy to make it as a big-company executive, don't try to compare yourself to them or look for some type of justice. It is a mammoth waste of time.
CoolLightGeek 12/5/2012 | 12:58:12 AM
re: Lucent's Fat Cats Get Fatter technoboy-
"I gave you the basic idea behind what they should have been paid"

Carli Fiorina made an average of $14M per year for the last 5 years. Do you view her as comparable to Pat Russo? Would you please give a clear answer in terms of $M per year for the last 3 years for Russo and explain why your number is vastly different than from Carli's numbers or the rest of the F500 execs? Then also explain why an exec should stay at LU versus trying to go somewhere else at the rates you suggest.

Do you view that the health benefits you currently receive from your company are an obligation that must stay the same for the rest of your career?
It's important to understand what you think an obligation is. A pension is clear cut obligation.
Do you have information about benefits you receive that would still be an obligation if the company you work for suddenly can only afford 1/4 the number of employees to pay into the benefits?

Again, let me state, IMO, the execs deserve fair market compensation packages and that they should voluntarily contribute a percentage given the extenuating circumstances of some of the retirees.

CoolLightGeek 12/5/2012 | 12:58:12 AM
re: Lucent's Fat Cats Get Fatter Jay,
1 "Supply and demand will dictate monetary reward."
Basic tenent of captalism- I agree.
2 "Do professional sports figures deserve what they are making? I have my doubts."
I guess you are now contradicting your statement #1.
3 "Paying for entertainment and providing jobs for others are two different comparisons. "
Huh? I suppose Brittany Spears's roadees are all salaried and pensioned and with dental benefits. Give me a break. In a capitalist system, those at the top get paid many times more than those at the bottom and it has nothing to do with "comparable worth".
4 "Everything we have is given to us from God..."
Religiously, I agree with these statement, but not from a capitalist system view. To be a good Christian, you have to give everything of yours while you live your life, not while waiting outside the gate. To be a good Christian, you should not covet the possessions of the rich, but should counsel the rich to freely give of their possessions.

The Truth sets you free and in the larger view it gives much more pleasure and peace than pain and hurt.
technoboy 12/5/2012 | 12:58:13 AM
re: Lucent's Fat Cats Get Fatter CLG

You have got to be kidding me. You make statements like all they have stopped is voluntary benefits but if they have broken any obligations than they maybe they should be held accountable. I gave you the basic idea behind what they should have been paid. No one or group of C level people should ever take sole responsibility for turning around a company or creating success. It is in fact the entire company that determines its success. If not breaking obligations to people is socialism than I guess that is what I am ( although that is not socialism). I see you did not respond to my question ( interesting). You sound like you must be one of the LU Execs making all of that cash. When you use statements like they should be paid what they are used to I just have to shake my head. Let me ask you a question. What if they were just paid a monetary bonus and not given stokc options. What if the stock option went back to the retirees? What if they only received options and the money went back to the retirees? Yes it is a bold concept in corporate america. Keep your promises and your obligations. I would type more but all I can say is Jay Matthews "AMEN"
lighten up!! 12/5/2012 | 12:58:15 AM
re: Lucent's Fat Cats Get Fatter Jaymathews, well said. People who think they have gotten ahead will be humbled in due time. The irony is that not one of them will take a single penny when they die...
jaymathews 12/5/2012 | 12:58:16 AM
re: Lucent's Fat Cats Get Fatter Supply and demand will dictate monetary reward. Do professional sports figures deserve what they are making? I have my doubts. Paying for entertainment and providing jobs for others are two different comparisons. Everything we have is given to us from God. If we think we deserve anything based on our own strengths, we are fooling ourselves. Some day we will all stand before our maker. We will have to leave everything we have accumulated on this earth outside the gate. Then, and only then, will we be judged of our real worth. To much is given, much is expected. Sorry for the sermon...truth hurts!
paolo.franzoi 12/5/2012 | 12:58:16 AM
re: Lucent's Fat Cats Get Fatter
Back to the beginning in comparison of LU and CSCO management.

Lucent - Dead company. Slowly going down the drain. Not a single competitive product on the wireline side.

Cisco - Dominates the IP space. Not one place can you go to avoid them. Very profitable.

Lucent's management needs to do radical surgery to save the firm. This management team is not doing so. It is only getting "profits" by getting one time income statement rewards. Every VP and above in the company should be terminated, but instead the executive team gets multi-million dollar bonuses.

seven
CoolLightGeek 12/5/2012 | 12:58:17 AM
re: Lucent's Fat Cats Get Fatter jaymathews,
I suppose that based on your conviction, of no one deserves millions in compensation, that you do not watch pro sports or listen to popular singers because you would be supporting their compensation packages.

"Jesus himself would not expect that kind of money for saving the world"

Jesus did not counsel the masses to create laws to prevent the greedy from being rich. He counseled the rich to voluntarily give up their riches. Free will is very big in his book. Lets hope and pray that we all voluntarily and of free will spend our own time and capital helping those less fortunate than us.

Merry Christmas and Happy Holidays to All.
jaymathews 12/5/2012 | 12:58:17 AM
re: Lucent's Fat Cats Get Fatter I may be way out of line on compensation but I can not even comprehend how any person deserves that kind of compensation. It would not matter to me if Russo made 10 billion dollars for the company this year. This is called flagrant over compensation. How can one person even spend that kind of money. Jesus himself would not expect that kind of money for saving the world. Where has our tolerance to human reward gone? Way out of proportion if you ask me. Merry Christmas!
CoolLightGeek 12/5/2012 | 12:58:18 AM
re: Lucent's Fat Cats Get Fatter "No One ever said they should not be compensated for their work."
So again, I ask how YOU would decide FAIR compensation. How many years would you pay LU execs less that their F500 equivalents if the company continues to downsize in the US but got more profitable? How would you decide that the lower than normal compensation did not reduce the quality of your execs?


"Is it fair to break a commitment to those retirees and then turn around and reward yourself."

It is my understanding that the LU execs/board broke voluntary benefits, but have not stopped any legally obligated pensions or benefits (some of these are at issue and if legally obligated I sure will be reinstated). If the company had gone bankrupt as predicted by most posters and pundits on this site, the current and future retirees would have lost ALL of their benefits and almost all of their pensions. And the US taxpayer would contribute nickels on the dollar to the pensions.

Lucent employees are subject to labor contracts or "at will" work agreements as are almost all other workers in the US. Your rant that it should be a criminal act to cut employees and get a bonus is advocating a level of socialism that is not consistent with the American free market system.
(Rewarding one's self for cutting payroll is not something that I am advocating, but I do not think it should be illegal).

Again, the LU execs have so far found a way to keep LU out of bankruptcy without government assistance (remember Chrysler?), to keep paying the current pensions and move the company on a trajectory to pay future pensions, when the conventional wisdom was bancruptcy and that all pensions may have been dramatically reduced by this year.

What you seem to be indicating is that the LU board should have hired execs that were willing to do this in a pro bono manner until the company grew to at least 4 times its current size in order to continue benefits at the previous levels.
Please explain what you would have done to get all the people paid what they had gotten used to, and still get the company to profitability? Which decisions could Russo have made in the last 3 years that would have grow LU profitability and revenue to 4 times its current size?

It sounds like you would be more comfortable if the US laws were more like those in Europe and that could explain your misunderstanding of how and why the US system works better. The US would not benefit from becoming more European-like.
technoboy 12/5/2012 | 12:58:18 AM
re: Lucent's Fat Cats Get Fatter No One ever said they should not be compensated for their work. Just like retirees should be compensated for the work they have done. After all many of them had a hand in building the company as well. In your analysis, the execs are critical to turning the company around. One of the ways they did that was to reduce the commitments to the people that were there and helped build the company then retired only to see LU go into the toilet. It kills me that people are even arguing this at all. Lets just screw the employees as long as it can make the company look profitable and I can get my big fast raise. Again this is about LU. The only other comparisons that I believe are relevant are with other companies that have done the same thing to their retirees.

Again with the personal attacks on my maturity. Typical for some on this board. I will give you an easy formula. Whatever percentage of bonus the execs get the same percentage should be restored to the benefits that were cut to those retirees.

Why don't you answer the real question? Is it fair to break a commitment to those retirees and then turn around and reward yourself. Here is another aspect to this whole equation. Many companies have defaulted on their commitments by going into bankruptcy. When that happens the retirees pensions are picked up (at a drastic reduction) by the government. Which is basically the taxpayer (that is you and I by the way). Same companies emerge from bankruptcy and two years later post a significant profit. Does this company have any responsibility to you and I to perhaps repay some of what they were able to avoid paying or should we just pat them on the back and give the C level execs millions of dollars in bonuses?

It looks bad to cut jobs and benefits. Yes it LOOKS VERY BAD. It should be pretty much a CRIMINAL ACT. By the way, we recently have a new personal bankruptcy law which states that you and I ( the taxpayer)must repay some of our debt going forward. No longer will we ever be able to wash away all of our responsiblities if we go into bankruptcy. Do you think it is too much to ask for corporations to do the same thing?
CoolLightGeek 12/5/2012 | 12:58:21 AM
re: Lucent's Fat Cats Get Fatter So, in your view, LU execs should not take a bonus if they have to cut retiree benefits even if it is critical to the formula of making the company profitable. Do you expect the execs should swear an oath of poverty (or at least disproportionate compensation from their Fortune 500 counterparts) while LU benefits regress to industry norms?
AGAIN, what would you have as the BASIS for determining fair compensation for executives? Your unwillingness to attempt to seriously answer the question indicates a lack of maturity in considering the matter.

I agree that it looks bad to cut US jobs and to cut benefits to retirees, but those actions were a significant part of balancing the company's budget. To be perfectly blunt, Wall Street does not reward companies for being overly concerned about their US employees or retirees.

I don't think the current group of LU execs feels they were responsible for the past financial mess but they do view themselves as critical to the recovery. Execs (like pro sports players) try to get the best compensation deal they can. Are sports players unethical? Do you think it unethical for many funeral homes to be highly profitable?

Chambers has so much Cisco stock, an extra $13M in salary and bonus would mean hardly anything to him. I think the comparisions to Fiorina and other F500 is very relevant.

Execs in general are not overly loyal, unless of course, they built the company from the ground up. Many of us are not surprised when a typical exec "moves on/sells out" to move to more $$ and power- just like Carli did. Or just as the typical engineer did during the bubble.

Today, the typical engineer's employment options are narrow but not the typical exec's.
deer_in_the_light 12/5/2012 | 12:58:21 AM
re: Lucent's Fat Cats Get Fatter Lucent sucks again, see the LR video, it's funny
big_daddy_cool 12/5/2012 | 12:58:21 AM
re: Lucent's Fat Cats Get Fatter I guess what everyone is saying is that Pat Russo and crew shouldn't even be there to begin with.

It's like if the Jets were to replace Herman Edwards with Rich Kotite and tacking on a 50% raise to boot.
dmw_qqqq 12/5/2012 | 12:58:21 AM
re: Lucent's Fat Cats Get Fatter I recently read a book:

"Optical Illusions: Lucent and the Crash of Telecom" by Lisa Endlich. It is worthy of reading...

From the book you can see that Lucent is so sick that its problems can not be solved by an insider, thus I agree that some slamming of LU is a good thing, maybe lots of it.

-dmW
technoboy 12/5/2012 | 12:58:22 AM
re: Lucent's Fat Cats Get Fatter CLG

You can abstain from the personal remarks. It is not a useful part of the discussion. You went after LR because they are pointing out that LU is giving their execs large bonuses while the retirees have their benefits. What is happening at LU in this regard is a valid discussion point. It has nothing to do with what Chamber is making. That is my point. To make a comparison between the Cisco and Lucent and say it is unfair is a separete discussion. Gee the value of the shares granted to Cisco execs is greater. Perhaps that is because the company is doing just a tad bit better.

To net it out. Giving out executive bonuses while retirees are getting screwed is an unethical in my view. Take it or leave it.
CoolLightGeek 12/5/2012 | 12:58:23 AM
re: Lucent's Fat Cats Get Fatter Comparisions are important: Carli Fiorina, former LU exec make over $70M in the last 5 years. Does she deserve that much more than Patti?

http://www.forbes.com/static/e...

http://www.forbes.com/static/e...
CoolLightGeek 12/5/2012 | 12:58:24 AM
re: Lucent's Fat Cats Get Fatter "You are making a completely irrelevant comparison."

Technoboy,
Grow up. If you were to decide what the relative compensation packages of Fortune 500 executive teams, what would be the primary factor in total compensation? Wouldn't it be the market cap of the company? Or would you want to tie it to revenue numbers? (Which got McGinn and NT improperly stating revenue numbers and screwing up their companies). Do you have data that shows the LU compensation is out of line?

As I've said before, it would be good if the LU exec's could have shown more compassion and turned around and donated a percentage of their windfalls to LU retirees that are destitute. I do not know their charitable contributions (they may have done this and I don't know it: but then again, I am always skeptical of people who like to draw attention to their contributions).

As to Chambers vs Russo comparision, check out:
http://www.forbes.com/static/e...

Also in another article in Forbes from 5/04:
"Last year San Jose, Calif.-based Cisco granted its top five executives 6 million options, while Lucent granted its top five execs 6.25 million options--though using Black-Scholes methodology, Equilar calculates the value of Cisco's options grants to be $65 million, nearly ten times greater than the value of Lucent's grants."
spelurker 12/5/2012 | 12:58:24 AM
re: Lucent's Fat Cats Get Fatter
While I think LR's reputation for slamming LU is well deserved, I can't fault this article too much.
Though it would be a better article to compare a few companies.

---------------------------------------------
CLG>
CBISONLINE>
"Current Cisco Systems CEO John Chambers averaged over $87 million per year over a three-year period according to published reports. That total compensation package is 2,277 times the pay of the average U.S. worker."
--------------------------------------------
That article is not too informative. My best guess is that they are comparing what Chambers received in combined wages, bonuses, and stock to the average salary (minus benefits & stock) of the average U.S. worker (including Walmart cashiers, etc.)

Chambers got all his money from stock options, and in those 3 years, Cisco has been continually growing in product breadth, maturity, market share, profit, and market cap.

The LU team essentially ran the company into the ground, shed MOST of the product line AND employees, lost market share, and market cap in an unheard-of scale. Then, stopped the collapse as the speeding truck was a hair's breadth from the brick wall.

Kudos for stopping the carnage, and a bonus is probably deserved.
The problem is that these levels of compensation are expected by all involved regardless of performance. Janet's sector lost money -- yet she still got a bonus. Pat would have gotten similar pay if the company was failing. In fact, in previous years, she did.

To put the recent performance of LU into a bigger context, Pat cut her teeth in the services part of the company. When she was given her current job, LU was a product house that disguised itself as a "solutions" company. She doesn't know how to run a product house, or a "solutions" house. So she systematically killed off products and spun off divisions until LU bore a much stronger resemblence to a services company than a product house. Now the company has stabilized, but it is not the company which she was hired to run.

Yes, a company has been saved, but the folks who did so were the ones who created the problems to begin with.

technoboy 12/5/2012 | 12:58:25 AM
re: Lucent's Fat Cats Get Fatter CLG

You are making a completely irrelevant comparison. Chambers was also paid a dollar until the most recent fiscal year. Is that a useful comparison to make with Russo. We are talking about a company that has lost tens of billions in market value over the last four years and has essentially broken a promise made to retirees who do not have the luxury of even re-entering the job market. All of this under the explanation of cost cutting. Meanwhile the senior executives are raking it in for finally posting a profit. No one is saying they should not be compensated but where are the ethics in cutting someones healthcare who is 70 years old and then turning around and compensating a CEO with over 13 million in cash and prizes!!!!
CoolLightGeek 12/5/2012 | 12:58:25 AM
re: Lucent's Fat Cats Get Fatter While I've stated before that I think in general executive compensation is excessive, how about comparing to CSCO Executive packages before slamming LU?

http://www.cbisonline.com/head...
(As of last year)
"Current Cisco Systems CEO John Chambers averaged over $87 million per year over a three-year period according to published reports. That total compensation package is 2,277 times the pay of the average U.S. worker."

I would guess that the LU Exec team has been paid a fraction of what the CSCO team is paid, with the fraction slightly higher than the ratio of the companies' market cap.
CoolLightGeek 12/5/2012 | 3:29:14 AM
re: Lucent's Fat Cats Get Fatter WiserNow,

I should have qualified my statement to the CEO and CFO execs that you see on the podium of fortune 500 earnings calls, not the full set of execs. I think Russo and D'Amielo would not have trouble finding other positions.

You are definitely right most LU execs would find it difficult to move and so would most execs in the telecom industry.

In general, execs have very good networks of contacts to identify opportunities. The implosion of the industry destroyed many of the opportunties.

I can try to empathize with your difficulty in continuing a career in the industry. Executives typically have financial means to get them through tough times. The answer for many may be starting over in another industry and realizing that it will never come again as quickly and easily as it was in the late 90's.

Some people view the late 90's as a VC sponsored corrupt pyramid scheme where only the VCs and the execs made out.

I don't understand your "being a slave" comment. It sounds like you favor being a leader on a team and may have difficulty being contributor on a team knowing that the team will likely shrink.
If so, the current North American telecom industry is probably a difficult place for you to thrive in.

Clearly, some of us had it better in the good times and some of us have it worse in the bad times. But it is best to treat everyone with reasonable respect no matter what their current or previous positions in the industry.

Good luck to you in your future pursuits. And thank you for contributing your thoughts.

CLG
WiserNow 12/5/2012 | 3:29:15 AM
re: Lucent's Fat Cats Get Fatter >> Today, the typical engineer's employment options are narrow but not the typical exec's.

Hate to burst your bubble, but exec's have just as tough a time on the street as the regular joe or jane.

There are 50 - 100 jobs for typical engineers for every executive role. So, if you've been looking for several months, multiply that at least 10 times over for the boss. In fact, of the senior management I worked with prior to my company being acquired by Lucent, only a couple currently are employed, though most sincerly would like to be working productively. Almost all the typical engineers have landed something -- if not something exciting and wonderful.

I was an 'E' level at Lucent -- through acquisition. I stuck around as my company was incorporated, but after a while, I exited Lucent for new horizons. Glad I never realized what the 'E' level severance package was -- I can't imaging being a slave, awaiting the liberty offered by FMP.

I had to justify why I'd not left sooner to be a credible candidate. And of course, not every startup makes it.

Having had a senior position makes it difficult to be taken seriously if one applies for a more hands-on role. The "overqualified" word comes up. Of course, people assume your engineering talent has dried up -- if it ever existed.

We're all in this boat together. We had good times and now we have bad ones.



Bruford 12/5/2012 | 3:30:32 AM
re: Lucent's Fat Cats Get Fatter I am new at this so please bear with me here...
I, for one, am totally disgusted with the level of compensation provided to Lucen Senior Management. From my perspective, these individuals have done NOTHING to dramatically improve the company's worth. The only thing I have seen from senior management is "expense reduction"...reducing headcount, offshoring (again, head count reduction),benefit reductions for retirees and passing additional cost of benefits to the workers. This is the easy road. There is no vision or direction for Lucent from senior management other than the myoptic idea of "convergence". Its another example of Lucent's inability to be visionary in terms of the market, to create and drive a "shared vision" within the company with clear, concise goals and metrics and, once again, Lucent's late entry into the current cash flow stream- i.e- follow the buck after someone else has led the way.

If management were worth their weight in salt they would be able to steer the ship into clear and profitable harbors. These folks are supposed to be the captains of this ship. Its more like they are pirates taking away the booty after keelhauling the crew.

Lastly, receiving bonuses worth, in Pat Russo's case, 13x her annual salary, is preposterous. There is probably not a rank and file person within Lucent that received a bonus worth anywhere near 13x their salary...the stockholders and employees at Lucent have been taken. There needs to be an uprising by the shareholders to prevent this kind of pilaging. If the stock had risen 1300% I might be more sympathetic to this level of bonus but it didn't so I'm not.
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