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:

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

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