Nortel CEO's $100 million US earnings expected to spur angry shareholders
RELATED SYMBOLS: (NT)
TORONTO, Mar 15, 2001 (The Canadian Press via COMTEX) -- Recent news of
executives getting rich at Nortel Networks prior to the high-tech giant's wild
spiral downward on the stock market has lawyers sharpening their pencils while
the company denies it has done anything wrong.
A report that Nortel chief executive John Roth earned $100 million US last year,
along with news that executives cashed-in on insider trading, comes as the
company's shares are still being punished by its reduced forecasts and a
downturn in the tech sector.
That's enough to incite already angry shareholders who have watched their
investments disappear with the stock plummet, analysts said Wednesday.
"It's like waving a red flag under their noses," said Lawrence Surtees, a senior
telecom analyst with IDC Canada. "This is what we're talking about. We're
talking about (shareholders) getting fleeced while these guys cash in."
Vincent Genova, a lawyer who filed a class-action lawsuit against the company
after it slashed its profit and growth forecasts for this year in half, said the
insider trading report "suggests that perhaps there is some credence to the
allegations and that warrants further investigation through our lawsuit."
The report, filed with the Ontario Securities Commission and security regulators
in the U.S., showed that at least 14 executives cashed out options in the weeks
before the company slashed its growth figures in mid-February and the stock lost
a third of its value.
In the process, the executives made millions of dollars.
"As the share price falls and shareholders see the executives pulling in more,
they'll say: 'We're right to pursue this,' " Genova, a lawyer with Toronto-based
Rochon Genova, said of the lawsuits.
Nortel faces several class-action lawsuits in Canada and the U.S. that allege
company executives sold shares based on inside information about the company's
growth prospects that weren't yet released to the public.
The suits also claim the company made misleading statements about its growth
prospects.
Nortel spokeswoman Tina Warren said the trades made by company executives
followed securities regulations and were only being done in a specified
timeframe that Nortel requires following it reporting earnings.
The company reported strong operating profits and revenue growth in on Jan. 18.
Nortel's shares on the Toronto stock market fell $1.53 on Wednesday, to close at
$23.97, a new 52-week low and far from its high of $124.50.
Nortel's proxy circular shows that Roth made $1.1 million US in salary, $5.6
million as a bonus - and $88 million by exercising stock options - even as the
company's shares began a freefall in October that's continuing still.
"It just underscores the disparity between well paid corporate insiders,
particularly in the tech sector, at a time when ordinary shareholders are
getting skewered," Surtees said.
The circular also shows Roth pulled in $135.2 million Cdn in exercising stock
options and $5.6 million US in cash and stock payouts under a long-term
incentive program for his performance in 1997 and 1998.
In 1999, he earned $7.2 million US in all, $2.2 million of it from cashing in
options.
However, outgoing chairman Frank Carlucci said: "Mr. Roth's compensation
reflects his outstanding contribution to Nortel Networks 2000 record revenues of
42 per cent growth over 1999."
Duncan Stewart, technology portfolio manager and partner at Tera Capital Corp.
in Toronto, said stock options are there to ensure a CEO does his job - increase
the stock price.
"When he sold his options, I could have sold my shares," he said, about last
year. "This is how the market works. This is how we pay for our guys.
"I don't have a problem with it. I don't think it's unreasonable," he said. "If
the shares hadn't gone up he wouldn't have made anything more than his basic
compensation."
Nortel's shares were on a wild ride in 2000, starting in the year in the $70
range, peaking at $124 and then dropping since last October when the company's
third quarter revenues were shy of expectations.
However, with the company expecting only 10 per cent growth in operating profits
this year, 2001 won't be as lucrative to Roth, Surtees said.
"Nortel delivered stellar revenue growth last year, and according to the current
forecasts, they won't this year so he shouldn't see anywhere near the $5 million
bonus in 2001 that he saw in 2000."
GILLIAN LIVINGSTON
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