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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

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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
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 | 12:58:17 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!
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
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...
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