By Dennis K. Berman
LUCENT TECHNOLOGIES Inc. has paid $16.2 million in retention bonuses to senior executives since the beginning of the year, and some have been promised a second round if they stay at the struggling telecommunications company through November, people familiar with the awards say.
The payments have become a divisive issue inside Lucent, which has set out on yet another round of cost cutting. Lucent Chairman Henry Schacht has urged employees to share in the pain: Salaries have been frozen since December 2000 and won't be raised until October 2002. Meanwhile, selected performance bonuses to nonexecutive managers were suspended indefinitely starting in July of last year. At one point in the belt-tightening, Lucent dimmed lightbulbs in the halls of its Bell Laboratories unit.
A 16-month purge of the work force has left Lucent, based in Murray Hill, N.J., at half its peak size. On Monday, the telecommunications-gear maker said it will shed about 6,000 more jobs, bringing its total employment to about 50, 000, a far cry from the 107,000 people it employed at the end of 2000. Lucent reported a loss of $595 million for the fiscal quarter ended March 31.
Employees now are questioning whether the awards are necessary, given the scarcity of jobs at both rank-and-file and senior levels in the industry.
In February, Adrienne Tanzi, director of Lucent's payroll operations unit, sent an e-mail memo to Lucent Chief Executive Patricia Russo and two other senior executives, raising concerns that the payments were compromising the company's internal payroll controls. Payroll employees, she said, were asked by top managment to ignore standard procedures for issuing payments. "Millions of dollars in cash payments and salary merit increasese have been repeatedly made to select executives -- at the same time the corporation has been stating, both internally during Lucent broadcasts and publicly, that during this time of business downturn, no funding is available or being made," Ms. Tanzi wrote in the Feb. 5 memo.
Mr. Schacht, Lucent's chief executive from October 2000 to January 2002, made no apologies for the bonus program in an interview yesterday, saying he designed it to prevent defections. "I personally believe it was one of the best decisions I ever made," he said. In 2000, when the program was put in place, Lucent was in "murky, murky times," Mr. Schacht said. Keeping executives was necessary for Lucent to get back on its feet, he said.
Among the awards, paid on Jan. 31, were $1.5 million to Chief Financial Officer Frank D'Amelio; $1.25 million to Treasurer Martina Hund-Mejean; and $ 500,000 to Senior Vice President, Advertising and Public Relations, Kathleen Fitzgerald, according to people familiar with the awards. These executives have been promised second payments in the same amount if they stay at Lucent through November.
In addition, Lucent's proxy statement details several one-time payments to other senior executives. Chief Operating Officer Robert C. Holder got $4.5 million in January, and William O'Shea, chief of the Bell Labs unit, got $3.1 million. Ben Verwaayen, a former vice chairman, received $3.3 million as part of a pre-existing retention contact. He left Lucent in December 2001.
Ralph Maly, an official with the Communications Workers of America, which represents 12,200 union members at Lucent, says Lucent's chief financial officer did a good job improving its financial standing after fears of a liquidity crisis in 2001. Still, he said, "if managers need to be paid bonus money to stay on the job, that suggests a lack of commitment to the company and sends a poor signal to other Lucent employees and shareholders."
After receiving Ms. Tanzi's letter, the company hired independent attorneys at Latham & Watkins to conduct an outside review of the allegations. Latham attorney Alan Kraus says he found no wrongdoing, illegality or contradictions of executives' statements. While executives said they would hold the line on performance bonuses, Mr. Kraus says, "there was no commitment that there weren't going to be other retention payments made."
Mr. Kraus says the conclusion was "her allegations did not give rise to legal concern." He says the basis of Ms. Tanzi's letter was a series of " miscommunications" within the payroll department, which should be corrected with minor changes in procedures.
Vito Gagliardi, Ms. Tanzi's attorney at Porzio, Bromberg & Newman, in Morristown, N.J., says his client's memo reflected her "heartfelt concern" about a company to which she has been "fully dedicated." She is still employed at Lucent. He adds that "so far as I know, she and her department continue to have their concerns."
Mr. Schacht, meanwhile, says the company conducted the investigation properly and has put the issue behind it. "From my point of view, this is the model of how a corporation ought to behave, particularly now," he says.
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Cashing In
Retention bonuses paid to top Lucent executives
Bonus
Executive in millions
Robert Holder $4.50
Chief Operating Officer
Frank D'Amelio 1.50
Chief Financial Officer
Martina 1.25
Hund-Mejean Treasurer
Kathleen 0.50
Fitzgerald Senior VP
Jeffrey Jaffe 0.50
President, Bell Labs
(END) DOW JONES NEWS 04-25-02
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