Nortel Loses Billions & Plans Bonuses
Nortel Networks Ltd. unveiled fourth-quarter and full-year financial results today that, not surprisingly, showed marked declines in year-on-year sales for a bankrupt company currently restructuring. (See Nortel Reports Q4 and Nortel Files for Bankruptcy Protection.)
What might surprise many, and anger people too, is that the vendor is lining up bonus payments for some of its senior executives and staff in North America.
Only a week after announcing 3,200 staff will lose their jobs in 2009 without any automatic financial compensation (they will need to chase any payments through the bankruptcy claims process) and with a cash balance of $2.4 billion, Nortel has applied to the District of Delaware Bankruptcy Court for approval to make retention bonus payments to "key employees." (A separate application will be made for staff based in Europe.) (See Nortel Cuts 3,200 Jobs.)
In its application to the court, Nortel noted: "In order to thrive in such a technically complex and highly competitive industry, it is necessary for Nortel to retain the highly-skilled and well-trained members of its workforce. Notwithstanding the current economic conditions, Nortel's key employees are highly sought after by Nortel's competitors. If these key employees resign, the Debtors' [Nortel's] operations will be impaired significantly and the Debtors' plans to maximize the value of the Debtors' estate will be hampered severely."
Brutal as it may seem, Nortel wants to reward key staff to stop them jumping ship. Even in this economy...
Nortel uses a number of criteria to identify the employees it wants to include in the bonus scheme, including their direct value to the company, the difficulty of replacing them, and the rating they received in their most recent employee reviews.
One part of the proposed scheme, the Key Executive Incentive Plan, aims to reward 92 senior executives, comprising eight members of the Senior Leadership Team and 82 members of the Executive Leadership Team, plus two other employees. If approved, their bonuses will range from 20 percent to 183 percent of their salaries and will cost up to $23 million in aggregate.
CEO Mike Zafirovski is NOT one of the executives included in the proposed scheme.
Another part of the scheme aims to reward 880 key staff with a bonus of between 13 percent and 44 percent of their salary. That scheme would cost $22 million if approved.
A Nortel spokesman noted that the vendor has restarted its Annual Incentive Plan for all staff, having canceled it for 2008, and will make payments on a quarterly basis. The company doesn't have any details about the levels of bonuses it's possible for employees to be awarded or what the aggregate payments for 2009 might be under that scheme.
Meanwhile, the company has just announced an annual loss for 2008 of $5.8 billion.
The financials
The headline story for the fourth quarter is that, compared with a year earlier, revenues were down in each business segment, and down 15 percent overall to $2.7 billion. Perhaps worryingly for Nortel, its Enterprise Solutions division suffered the biggest decline in revenues, down 30 percent. (See table below.)
Table 1: Nortel's Q4 2008 Revenues By Division
Non-cash charges of $2.19 billion (a goodwill writedown and a reduction in deferred tax assets) sent Nortel's fourth-quarter net income deep into the red at nearly $2.14 billion. For the full year the vendor reported a net loss of $5.8 billion (including non-cash charges of $5.4 billion) from revenues of $10.4 billion.
Gross margins for the fourth quarter and full year were 40.4 percent and 41.1 percent respectively.
Orders were $2.64 billion during the fourth quarter, down from $3.24 billion a year earlier. The company isn't providing any guidance for the coming quarters.
–Ray Le Maistre, International News Editor, Light Reading
What might surprise many, and anger people too, is that the vendor is lining up bonus payments for some of its senior executives and staff in North America.
Only a week after announcing 3,200 staff will lose their jobs in 2009 without any automatic financial compensation (they will need to chase any payments through the bankruptcy claims process) and with a cash balance of $2.4 billion, Nortel has applied to the District of Delaware Bankruptcy Court for approval to make retention bonus payments to "key employees." (A separate application will be made for staff based in Europe.) (See Nortel Cuts 3,200 Jobs.)
In its application to the court, Nortel noted: "In order to thrive in such a technically complex and highly competitive industry, it is necessary for Nortel to retain the highly-skilled and well-trained members of its workforce. Notwithstanding the current economic conditions, Nortel's key employees are highly sought after by Nortel's competitors. If these key employees resign, the Debtors' [Nortel's] operations will be impaired significantly and the Debtors' plans to maximize the value of the Debtors' estate will be hampered severely."
Brutal as it may seem, Nortel wants to reward key staff to stop them jumping ship. Even in this economy...
Nortel uses a number of criteria to identify the employees it wants to include in the bonus scheme, including their direct value to the company, the difficulty of replacing them, and the rating they received in their most recent employee reviews.
One part of the proposed scheme, the Key Executive Incentive Plan, aims to reward 92 senior executives, comprising eight members of the Senior Leadership Team and 82 members of the Executive Leadership Team, plus two other employees. If approved, their bonuses will range from 20 percent to 183 percent of their salaries and will cost up to $23 million in aggregate.
CEO Mike Zafirovski is NOT one of the executives included in the proposed scheme.
Another part of the scheme aims to reward 880 key staff with a bonus of between 13 percent and 44 percent of their salary. That scheme would cost $22 million if approved.
A Nortel spokesman noted that the vendor has restarted its Annual Incentive Plan for all staff, having canceled it for 2008, and will make payments on a quarterly basis. The company doesn't have any details about the levels of bonuses it's possible for employees to be awarded or what the aggregate payments for 2009 might be under that scheme.
Meanwhile, the company has just announced an annual loss for 2008 of $5.8 billion.
The financials
The headline story for the fourth quarter is that, compared with a year earlier, revenues were down in each business segment, and down 15 percent overall to $2.7 billion. Perhaps worryingly for Nortel, its Enterprise Solutions division suffered the biggest decline in revenues, down 30 percent. (See table below.)
Table 1: Nortel's Q4 2008 Revenues By Division
| Revenues in millions | Q4 2008 | Year on Year change | Quarter on Quarter change |
| Carrier Networks | $1,234 | -8% | 50% |
| Enterprise Solutions | $535 | -30% | -13% |
| Global Services | $530 | -12% | 5% |
| Metro Ethernet Networks | $371 | -14% | 17% |
| Other | $52 | -7% | -9% |
| Total | $2,722 | -15% | 17% |
| Source: Nortel | |||
Non-cash charges of $2.19 billion (a goodwill writedown and a reduction in deferred tax assets) sent Nortel's fourth-quarter net income deep into the red at nearly $2.14 billion. For the full year the vendor reported a net loss of $5.8 billion (including non-cash charges of $5.4 billion) from revenues of $10.4 billion.
Gross margins for the fourth quarter and full year were 40.4 percent and 41.1 percent respectively.
Orders were $2.64 billion during the fourth quarter, down from $3.24 billion a year earlier. The company isn't providing any guidance for the coming quarters.
–Ray Le Maistre, International News Editor, Light Reading
DCITDave
12/5/2012 | 4:10:32 PM
re: Nortel Loses Billions & Plans Bonuses
sorry, here's the proper poll link:http://www.lightreading.com/su...
DCITDave
12/5/2012 | 4:10:32 PM
re: Nortel Loses Billions & Plans Bonuses
inavu...very nuts of you, thanks.
now, really, let's debate this. isn't there some reasonable expectation that Nortel will have to do something to keep from having a brain drain?
a poll for your thoughts?
http://www.lightreading.com/se...
inauniversefarfaraway
12/5/2012 | 4:10:32 PM
re: Nortel Loses Billions & Plans Bonuses
Dear_List:_Hopefully_there_is_a_faint_glimmer_that_the_soapboxing_about_Nortel_on_this_web_site_is_all_very_sadly_true.__Many_have_pointed_to_the_unfairness_of_the_allegations_made_on_this_site.__Ideally_these_events,_these_"clues",_are_beginning_to_clarify_the_depth_of_depravity_in_Nortel_brass._There_is_no_measure_to_describe_what_these_people_will_do_to_lavish_upon_themselves_every_unfair_advantage_and_sink_the_company_in_the_process.__Here_is_a_hint:_those_people_singled_out_for_bonuses_should_be_escorted_to_the_door_immediately,_no_questions,_no_severances,_goodbye!__Are_these_people_who_have_"given_their_lives_to_Nortel"?_Remember_those_days?__It_just_goes_to_show_that_even_while_many_are_discarded_as_refuse,_others_profit.__These_are_probably_the_same_people_who_made_sure_their_options_were_well_in_the_black_while_employee_options_were_granted_"underwater".__Either_way,_Nortel_brass_will_get_what_is_coming..._What_goes_around,_inevitably_comes_around.
opticalwatcher
12/5/2012 | 4:10:31 PM
re: Nortel Loses Billions & Plans Bonuses
So 172 executives get a bonus of 20 to 183 percent of their salaries and 880 key staff (presumably the people actually designing, building, and supporting the products) get a bonus of 13 to 44 percent. If these executives had forsight they'd realize that if they reverse these percentages they might have a better chance of actually having a job a year from now.I would think a statement such as "we consider you a key employee and plan to keep you around as long as we are in business" would be sufficient in the present high-unemployment environment. Job security is worth quite a bit nowdays.
I guess employees could quit and try to get a job somewhere else, competing with the 3000 people who just lost their jobs.
inauniversefarfaraway
12/5/2012 | 4:10:31 PM
re: Nortel Loses Billions & Plans Bonuses
Phil,__Be_reasonable,_you_must_be_sorry_you_never_saw_this_coming,_or_the_bankruptcy?__
We_agree_that_it_is_sad_that_this_is_not_coming_from_the_"experts".
This_is_by_far_your_most_humorous_post:__
Nortel,_a_brain_drain?__Yes!!!!____Why_does_the_good_Lord_alow_these_folks_to_walk_the_earth?
This_bonus_"scheme"_is_the_same_as_a_Ponzi_scheme.__
Nobody_will_hire_these_aspiring_criminals_and_they_don't_need_encouragement.__Is_this_not_what_got_us_here_in_the_first_place?__
You're_quite_welcome!__Reality:_try_it_some_time.
MMQoS
12/5/2012 | 4:10:30 PM
re: Nortel Loses Billions & Plans Bonuses
"INTEGRITY" that is what the posters in the halls were advertising when I left in December. Seems that the Nortel Board of Directors needs to practice some integrity as well as a fast course in fiduciary responsibility.
netmeister
12/5/2012 | 4:10:30 PM
re: Nortel Loses Billions & Plans Bonuses
Honestly, with all the bonus scandals going on right now, I think the word "bonus" automatically triggers a backlash, without people thinking through anything.Is Nortel justified in giving key employees retention bonuses? Yes. Whether that's good business or corporate greed, however, depends highly on exactly who the receivers are. If it's just a blanket payout to the exec staff, then it's crap. Frankly, the exec staff should all be summarily fired. Having to say, "Yes, I was on the exec staff of Nortel when it filed Chapter 11," when looking for their next job should be enough of a retention influence that the exec staff would be happy to sit tight and take their standard salary.
But, there really are key employees at Nortel who are not compensated at the executive level who need to be retained. While Cisco and others are laying off, there are employees who are so key that they can find jobs with these competitors even in down markets. These are the ones you should target with bonuses.
They will be needed for Nortel to have any shot of emerging from Chapter 11 with a reasonable prognosis for the future.
inauniversefarfaraway
12/5/2012 | 4:10:29 PM
re: Nortel Loses Billions & Plans Bonuses
It_is_more_likely_that_the_bonuses_are_merely_a_way_for_these_fat_cats_to_get_a_severance_that_others_are_denied."Integrity"_is_the_issue_with_Nortel_and_it_is_the_lack_thereof.
Seriously,_does_anyone_believe_Nortel_is_coming_out_of_this? _Even_if_they_emerge_from_Chapter_11,_whatever_is_left_will_likely_collapse_under_the_weight_of_the_executive_death_squad.
Whatever_happened_to_Nortel_not_needing_anyone?_Nobody_is_indispensable,_especially_a_Nortel_employee,_much_less_an_executive.
Ideally_they_will_get_their_bonus_and_it_will_be_a_pleasure_to_express_how_you_read_it_here_first_how_they_are_just_playing_the_system,_again.
edp01
12/5/2012 | 4:10:29 PM
re: Nortel Loses Billions & Plans Bonuses
Bonuses for what? It is ridiculous to provide bonuses to the executive team that essentially destroyed shareholder equity (difficult to sell to even cover commissions for the smaller investors), the company reputation, and has made it extremely difficult for those of us who selected Nortel as the vendor of choice in our integrator business overt the past several decades. Yes, I have been pushing the Nortel products for over two decades. Now there is no credibility at all from the executive team so why bother to struggle to push the products solely for the enrichment of a failed executive team. The teams that developed and support the product lines are the ones who are deserving, not the "elite?" executive team. Let them join the ranks of the unemployed in this economy as they have forced many to do so with "rewards" for inept performance.
ph