Nortel's Owens Joins Fat Cat Club

If you're among the Nortel Networks Ltd. (NYSE/Toronto: NT) staff about to lose their jobs as a result of the latest cost-cutting measures, you may want to look away (see Nortel Cuts 3,500 Jobs).

With the vendor still embroiled in an accounting scandal that has attracted a number of external investigations, seen board level executives lose their jobs, and seen the share price slide from $8.50 in February to $3.83 yesterday, Nortel CEO Bill Owens has signed an employment contract worth up to $2.7 million a year (see Problems Mount-y Up for Nortel, Dunn's Done With Nortel , and Nortel Rattles Nerves).

That sum, comprising a base salary of $1 million and an annual bonus worth up to $1.7 million, was revealed in a Securities and Exchange Commission (SEC) filing made yesterday, when the vendor also announced its latest restatement delay (see Nortel Restates Delay of Restatement ).

While Owens has been president and CEO of Nortel since April 27, when his predecessor Frank Dunn was given the order of the boot (see Nortel Dismisses Dunn), his employment agreement was finalized just this week. The "target annual bonus of 170% of base salary" will be determined under Nortel's "Success Incentive Plan," and based on "the generally applicable performance criteria under such plan," though there's no indication of what those criteria might be.

He is also in a pension scheme that will "accrue ratably over the first five years of his employment." The filing continues: "Assuming retirement at the end of such five years, Mr. Owens will receive an estimated monthly pension benefit of U.S.$33,540, payable over the five year period following his retirement." That's a neat $402,480 a year for five years.

Owens, though, has some way to go before he catches up with Lucent Technologies Inc. (NYSE: LU) CEO Pat Russo, who pocketed a $3,245,333 bonus in addition to her annual salary of $1.2 million last year (see It's Christmas Time at Lucent).

— Ray Le Maistre, International News Editor, Light Reading

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No-tell 12/5/2012 | 1:18:38 AM
re: Nortel's Owens Joins Fat Cat Club Given the things everyone KNOWS he will have to deal with (multiple criminal investigations, multiple securities investigations, downsizing & reorganization, shareholder lawsuits, etc.) it doesn't sound like that much money to me.
DarkWriting 12/5/2012 | 1:18:35 AM
re: Nortel's Owens Joins Fat Cat Club Is this American or Canadian dollars? Either way,
1,000,000$/yr / 365days/yr / 24hr/day = $114/hr!!

There is NO way anyone can justify this kind of pay regardless of the company or it's tribulations. And this doesn't even include the cars, loans, country club membersips, options, etc. Something is very wrong in North America.

deauxfaux 12/5/2012 | 1:18:32 AM
re: Nortel's Owens Joins Fat Cat Club Hey LR guys.....Canada is a free country, why don't you just apply for the job? Oh, thats right, didn't bust your tail to get engineering/physics degrees, didn't move 6 times to accept overseas turnaround assignments. You've probably never had a customer hold you accountable for failures either. If you are that good yourself, get off the sidelines and into the game. If you're not, then apologize and quit sniping.
palaeozoic 12/5/2012 | 1:18:32 AM
re: Nortel's Owens Joins Fat Cat Club You're right, how dare they.

Just because low level players in the NBA get paid twice that to sit on the bench for 82 games, how dare the Nortel board pay such a salary to someone they expect to lead them out of the worst telecom depression in history. Where do they get off thinking the leader of a 30,000 employee company controlling half the North American voice infrastructure deserves a $1 million pay package? Don't they realize that just about anyone could do the job? It's almost as if they think it take some special skill to simultaneously placate thousands of shareholders, employees, customers, and regulators. I'll bet that any one of the frequent contributors to LR message boards could step in and fix Nortel's problems for small fraction of what Owens is getting.

The nerve of these people who represent the owners of Nortel makes you wonder...

Machavelli 12/5/2012 | 1:18:31 AM
re: Nortel's Owens Joins Fat Cat Club You guys have a good point, that Bill Owens has quite a mess to clean up thanks to Roth and Dunn and should be paid appropriately.

But, I am still of the opinion that large salaries and bonuses encourage short term CEO thinking only. "How do I prop up the stock price, let's see, cut R & D again and fire a few more thousand loyal employees, etc."

If we look at John Chambers of Cisco Systems, his annual salary is $1.00 and he is compensated only in stock options. This, in my opinion, encourages long term CEO thinking. If the company does well under Chambers watch, everyone (Chambers, employees and stockholders) are rewarded. If not, Chambers gets to keep his $1.00 annual salary and worthless stock options.

Anyways, Nortel can afford to pay upper executives well with all the money they saved when they fired the Ethics officer and her staff 5 years ago as well as 65,000 employees since 2001.


keelhaul42 12/5/2012 | 1:18:31 AM
re: Nortel's Owens Joins Fat Cat Club Those are good points. For sure, Mr. Owens has a Royal Mess to straighten out.
Speaking only for myself, as a former Nortel employee and current stockholder, it's just plain disconcerting to see so many dollars (US or Canadian) flowing out the door for executive compensation when the situation just continues to deteriorate. The ongoing accounting scandals, earnings re-re-re-re-statements, endless job cuts, etc in this context would be amusing were the consequences not so serious for so many.
Like I said, Mr. Owens has a mess on his hands.

How much is it worth to straighten it out? A lot.
Would someone capable be willing to do it for less? Don't know but have my doubts.

keelhaul42 12/5/2012 | 1:18:27 AM
re: Nortel's Owens Joins Fat Cat Club Agreed. I should clarify: the meaning of straightening out the mess is to put Nortel onto a sound long term footing -- assuming that's even possible.
Saying all that, and getting agreement on what it really means, then finding person(s) who can make it happen is a tall order -- anywhere.
Top flight performance isn't free, I think Mr. Chambers has collected mroe than $35 million over the last year or two if memory servers correctly. Is he "worth" it?
Maybe Mr. Owens is the better deal assuming he performs the minor miracle needed.
I'm sure we can agree that Cisco of two years ago wasn't in any kind of trouble such as Nortel is in today too. In other words, was Mr. Chambers really making such a gamble?
DarkWriting 12/5/2012 | 1:18:27 AM
re: Nortel's Owens Joins Fat Cat Club Boy, I guess he if is working every hour of every day of the year all by himself he might just be worth this kind of money. Sheesh, some people can rationalize anything. I bet I can lay off a lot of people, offshore jobs and then skate out the door with a golden parachute before the shit hits the fan as well as any of these egos.


PS. Athletes aren't worth the money either. Thanks for making my point.
Machavelli 12/5/2012 | 1:18:26 AM
re: Nortel's Owens Joins Fat Cat Club Keel,

There is a world of difference between Cisco's management and Nortel's mismanagement.
Look at the key differences.

1) John Chambers has been with Cisco nearly 15 years (quite a long time for a CEO) as compared to 3 years or less each for Roth, Dunn and Stern. This tells me Cisco shareholders who influence the board of directors are pleased with Chambers' performance.

2) When the bubble burst in 2001, Nortel was heavily in debt thanks to Roth's wreckless acquistions that had nothing to do with Nortel's core business. Cisco was sitting on +20 billion in cash or equivalents.

3) Cisco fired at most 10% of its workforce compared to +70% at Nortel.

4) Cisco currently has an ethics office. Nortel does not and fired their ethics officer in 1999 because she was actually doing her job.

Like I said before, this is a big difference short term and long term management styles.


keelhaul42 12/5/2012 | 1:18:19 AM
re: Nortel's Owens Joins Fat Cat Club I don't disagree with you at all.
I am simply pointing out that (hopefully!) should he succeed Mr. Owens is not (so far as we know) to receive anywhere near the compensation paid out elsewhere for lesser accomplishments.
Your objection is (correct me if I"m wrong), should he fail, Mr. Owens will still be well paid.
That's true. Perhaps this is an indication that the people tapped for the job are skeptical of success, at least as far as some big stock payoff.
Has the orchestra started playing "Nearer Thy God to Thee" for Nortel? I sure hope not.
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