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Financial

Marconi Execs Collect on Turnaround

Enormous bonuses for vendor executives appear to be back in fashion.

Fifty senior executives at recently reorganized Marconi Corp. plc (Nasdaq: MRCIY; London: MONI) are picking up share bonuses at zero cost to themselves as a set of five financial targets are met. When, as seems inevitable, all the targets are met, CEO Mike Parton stands to hold 3.5 million bonus shares that have cost him nothing but which, at today's share price of £7.01 on the London Stock Exchange, would be worth £24.5 million (US$44.3 million).

The targets include:

    1) Cutting short-term debt by 30 percent from the $683 million at the time Marconi relisted on the stock exchange (see Marconi Debuts on Stock Market)

    2) Cutting short-term debt by 50 percent

    3) Cutting short-term debt by 100 percent

    4) Achieving a £1 billion market capitalization for 90 consecutive days once all the short-term debt has been paid off

    5) Achieving a £1.5 billion market capitalization for 90 consecutive days once all the short-term debt has been paid off
Marconi spokesman Joe Kelly says targets 1 and 2 have already been achieved, and target 3 will be met when the sale of Marconi's North American broadband unit to Advanced Fibre Communications Inc. (AFC) (Nasdaq: AFCI) is completed at the end of the first quarter of this year (see ... And Helps Marconi Cut Its Debt).

Once that happens, targets 4 and 5 come into play, says Kelly, and the signs are encouraging that they'll be hit. Marconi's current share price values the company at £2.64 billion.

As each target is met, it triggers the award of free shares. The shares from target 1 (20 percent of the stock to be awarded) can be exercised in May 2004. The shares from target 2 (a further 10 percent) in August 2004, and those from meeting target 3 (20 percent) can be banked in November 2004. If targets 4 and 5 are met, those shares are awarded in August 2005 (another 20 percent tranche) and August 2006 (the final 30 percent of shares), respectively.

Here's a table of the top beneficiaries.

Table 1: Marconi Free Share Bonus Payments - The Big Hitters
Name Job title Number of free shares awarded if all five targets are achieved Value of those shares at today's price of �7.01*
Mike Parton CEO 3.5 million �24.5 million ($44.3M)
Michael Donovan COO 2 million �14 million ($25.4M)
Pavi Binning CFO 1 million �7 million ($12.7M)
John Devaney Chairman 600,000 �4.2 million ($7.6M)
Source: Marconi.
* Share price on the London Stock Exchange at noon GMT January 20, 2004




This means that, at today's share price, Parton will receive £12.25 million ($22.15 million) worth of free shares this year.

The other 46 unidentified executives due to get free shares will receive smaller, unannounced volumes. In addition, 250 further staff are eligible to purchase an unknown volume of shares at £2.90 at the same time the free shares are awarded. Marconi currently employs 13,000 people.

Marconi's Kelly says the share bonus scheme was "put in place by the creditors at the time of the restructuring. This is not a case of bonuses awarded by the board to themselves. They're linked to the desire of the creditors to increase the value of their equity as quickly as possible so they can sell their shares and get back some cash."

Kelly adds that Parton agreed to a "no payment for failure" clause in his contract, and that the majority of the executives that signed up for the free share scheme "gave up their cash bonuses and pay rises to take part."

While Parton and his team's ability to keep Marconi alive has attracted praise, the size of these rewards has not been well received in some quarters. Under the restructuring, former shareholders received only 0.5 percent of the new equity. These include former employees who participated in a company shares scheme by converting some of their monthly wages into company stock. If all the current share bonus targets are met, the 300 staff involved will own about 6 percent of the total equity.

"There's no doubt in my mind that Mike Parton deserves a huge slice of the credit for Marconi's survival," says one former Marconi employee who wished to remain anonymous. "That means the jobs and livelihoods of the workers are assured." However, the ex-staffer questions whether a select number of executives should receive compensation that dwarfs the standard stock options available to the ordinary staff who have also helped to make the company's recovery possible. "Given the manner in which the survival was achieved, and the magnitude of the payout Parton will receive, it begs the question, 'Is it fair?' "

Kelly says the company took advice on the share incentives, that the scheme was agreed to and known when the company restructured, and that the scheme has had the backing of pension funds.

The company plans to give a third-quarter update on January 27 and announce its third-quarter results on February 12. Marconi is expecting sales to show a sequential increase from the £389 million ($704 million) recorded in its second quarter (see Marconi Reports Q2 Sales ).

— Ray Le Maistre, International Editor, Boardwatch

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hyperunner 12/5/2012 | 2:39:36 AM
re: Marconi Execs Collect on Turnaround ...for not putting a cap on the bonus that these people could earn in any one year. That was plain dumb.

The targets they set probably seemd wildly optimistic in the depths of the recession, with Marconi looking pretty doomed.

We have a lot of Marconi gear, and we were certainly looking at contingency plans in the event they went bankrupt.

But once the shareholders had paid off the debt for Marconi by giving up 99.95% of their equity rights, the situation looked a whole lot better. Throw in the right buyer for the access division, and a general improvement in market conditions and there you have it.

hR.
dodo 12/5/2012 | 2:39:36 AM
re: Marconi Execs Collect on Turnaround Are they running a financial institution or a telecom company trying to make a comeback through innovative products or systems?
pdt 12/5/2012 | 2:39:35 AM
re: Marconi Execs Collect on Turnaround
Kelly adds that Parton agreed to a "no payment for failure" clause in his contract, and that the majority of the executives that signed up for the free share scheme "gave up their cash bonuses and pay rises to take part."

please excuse me if I do not understand this paragraph. What did thes "executives" give up actually? If Marconi succeds they get these share bouns' mentioned in the article. If Marconi does not succeed they will not get their other cash bounus anyway.

My bouns is based on my company making a level of profit. If we dont make this profit, I do not get my bonus.

So to me, I am sorry but Mr Kellys' excuse does not mean anything.

gin-drinker 12/5/2012 | 2:39:34 AM
re: Marconi Execs Collect on Turnaround OK, so why do "executives" deserve these kinds of benefits? I can understand that they get more options than the ordinary Johns and Janes, but SO MANY MORE?

Lets remember that these people also earn A LOT MORE than the average worker. So thats their repayment from the company for doing agood job. Thats the compensaton for the stress of the work.

(Apparently the stress that the ordinary employee who is under threat to be laid off, and not make the next mortgage payment is somehow not "rewarded" in the same way)

Is their job SO MUCH harder than yours or mine? I know since the layoffs began at my company I've been covering for at least one lost employee, maybe two. I guess somebody will have to take those tasks on if I'm laid off.

What "risk" that these people are supposedly taking is in any way worse than the risks that face ordinary people?

Time was when I felt physically sick when I heard about the behaviour of scum like the Tellium founders, the idiots at Uunet, leeches like Russo at lucent, and now these guys at Marconi.

I don't feel sick anymore, just disappointed that the greed is so widespread.

Me
materialgirl 12/5/2012 | 2:39:33 AM
re: Marconi Execs Collect on Turnaround Growing asset values, otherwise called "fiduciary responsibility" is part of the CEO job. Share holders are not supposed to have to bribe them to get that. It comes with the post.

Rationalize it all you want, these guys are pigs. However, this greed is just part of a larger trend. We are headed toward a Latin American style two-tier economy: rich and poor.
technonerd 12/5/2012 | 2:39:31 AM
re: Marconi Execs Collect on Turnaround Growing asset values, otherwise called "fiduciary responsibility" is part of the CEO job. Share holders are not supposed to have to bribe them to get that. It comes with the post.

Rationalize it all you want, these guys are pigs. However, this greed is just part of a larger trend. We are headed toward a Latin American style two-tier economy: rich and poor.


Bingo! You are absolutely spot-on.
Mezo 12/5/2012 | 2:39:28 AM
re: Marconi Execs Collect on Turnaround Ok, ya had your fun and wah wah, in that Mike stands to make some cash...but if you knew Marconi and you knew the pain Mike's been riding over the past (5) years, I think you just might say good for him...it could have and still can go into the dumper...he's not like some of the others mentioned...

...and I'd say good for YOU if you can make some cash to...let's get back to those days...and undoubtedly someone would think it wrong for you to make some cash...ok, now back to the wah wah stuff...
ATMRules 12/5/2012 | 2:39:26 AM
re: Marconi Execs Collect on Turnaround Rumor on Rt 495 has it that they closed the doors and shut the lights off....Can anybody confirm?

ATMRules..............
steve 12/5/2012 | 2:39:26 AM
re: Marconi Execs Collect on Turnaround A little more sophisticated analysis required here gang - this is NOT the board lining the pockets of management at the expense of the downtrodden shareholder.

It appears to be an incentive agreement between the creditors and management - the creditors, more than anything, wanted their cash out of this pig, so they are willing to trade their equity ownership for cash - as long as management performs by paying down debt. The creditors are the ones harmed (less equity ownership) if they overincented (if that is a word) management. Give management credit for negotiating a good deal - that's why they get paid the big bucks.

What is wrong with this????
searcher72 12/5/2012 | 2:39:25 AM
re: Marconi Execs Collect on Turnaround On January 15, 2004 a news wire ran a headline stating that Coriolis laid off 30% of its staff.
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