Global Crossing Cosseted Executives As Pink Slips Loomed, Stock Fell
By REBECCA BLUMENSTEIN, DEBORAH SOLOMON and KATHY CHEN
Staff Reporters of THE WALL STREET JOURNAL
Renee Hinton says it was hard enough when she was laid off last August from Global Crossing Ltd. after 14 years with the company and its predecessor. But when the former fiber-optic darling declared bankruptcy last month, it dragged the systems manager into bankruptcy, too.
Like thousands of other laid-off employees, Ms. Hinton was required to take her severance package in spread-out payments rather than a lump sum. With the company's bankruptcy filing, those payments stopped. Medical benefits also were terminated. Many of the workers' 401(k) retirement plans, loaded with Global Crossing shares, became nearly worthless as the stock price plunged.
But for many Global Crossing executives, the outcome has been quite different. As the Bermuda-based company, which never turned a profit, headed for bankruptcy, some of these executives fared far better.
Global Crossing's new chief executive, John Legere, received a $3.5 million signing bonus when he took the job in October -- even though he was already employed as CEO of Asia Global Crossing, a separately traded affiliate. A company spokesman says Asia Global Crossing pledged Mr. Legere certain benefits to lure him from a high-ranking position at Dell Computer Corp.
See a list of perks Global Crossing gave to some executives.
At about the same time, Asia Global Crossing and Global Crossing forgave a $10 million loan to Mr. Legere, and Global Crossing eased the terms of an $8 million loan to Thomas Casey, Global's departing chief executive, according to filings the company made with the government.
The company also moved up its last pay date by a week so that executives and others still employed at Global could get paid before the company declared bankruptcy Jan. 28. Severance payments to the already laid-off workers weren't paid.
Furthermore, in recent months Global Crossing made 11th-hour lump-sum pension payouts totaling $15 million to high-ranking executives, most of them no longer with the company.
The payments were made after Global Crossing changed the terms of a supplemental pension plan for managers on Dec. 13 to allow them to take a one-time lump-sum payment with a penalty, in lieu of monthly payments, says Global Crossing spokeswoman Tisha Kresler. About 65 out of roughly 80 plan participants chose the lump-sum option, she says.
The payout has caught the attention of some lawmakers, who say they are interested in holding hearings on Global Crossing. "There has never been this kind of complaint by employees that they were robbed," says U.S. Rep. Louise Slaughter, a New York Democrat. Many Rochester-area residents have been hit particularly hard because the former Frontier Corp., a phone company that Global Crossing acquired in 1999, had a major presence in the region. Now, many of those employees have lost almost everything, she says.
A staff member of the U.S. House Banking and Financial Services Committee says the committee on Wednesday requested a confidential briefing on Global Crossing by the Securities and Exchange Commission.
Ms. Kresler says Global Crossing changed the terms of the pension plan, which had been set up by Frontier, to make them uniform with its own deferred-compensation plan. The company also changed the terms of another Frontier plan, a supplemental retirement savings plan, to allow for a one-time payout.
"We decided to change the other plans because it's not fair one type of employee was allowed to get a lump sum and others were not," Ms. Kresler says. In addition, she says, Global Crossing will continue to pay participants who opted to continue the monthly payouts; the bankruptcy court approved a request by the company to do so. She says she has no information that the change in plan terms and the one-time payout were related to the bankruptcy filing.
Global's bankruptcy has had no mercy for people like Ms. Hinton. With mounting medical bills, mortgage payments, credit card debt and tuition for her 12-year-old son's private school, Ms. Hinton says she has been forced to file for bankruptcy protection. To save money, she eats dinner at her mother's house every night and is paying her son's school bills with money from her mother's retirement account.
"I don't know what I'm going to do now," said Ms. Hinton, who said she made $79,000 last year. "I don't know why they don't forgive three or four of my [bank] loans. They have taken so much money, and employees are left with nothing."
As the SEC and the Federal Bureau of Investigation conduct separate investigations into questionable deals with other fiber-optic networks that potentially inflated the company's revenue and stock price, many employees say they feel they were duped.
As the stock fell from its high of $64 a share to 30 cents before the company filed for bankruptcy, the value of employees' 401(k) plans fell by as much as $200 million to $8.9 million as of Dec. 2001, including $5 million in company stock made as a match by Global Crossing to employee contributions, according to Rep. George Miller, a California Democrat who says he was given the information by Global Crossing. Until recently, employees couldn't sell the company's stock-match contribution for five years.
"Ninety-five percent of my contributions went to Global Crossing because they matched what I put in and I believed in what they were saying, that the company would turn around," says Amy Ghazle, a 30-year-old former project manager for Global Crossing. "Now, I have nothing." Ms. Ghazle, a resident of Rochester who came to Global Crossing from Frontier, received only three severance payments after being laid off in November, and cashed out her 401(k) plan last week for $150. A $350 check to reimburse expenses that she received on the day that Global Crossing declared bankruptcy bounced.
Top executives, however, generated a total of $1.3 billion in stock sales from 1999 through last November, government filings show -- an amount that exceeds even the insider sales at Enron Corp. Global's chairman, Gary Winnick, sold nearly $735 million in stock, while co-founder Barry Porter reaped $95.9 million from shares. Directors Lodwrick Cook and Joseph Clayton cashed in $31.9 million and $16.7 million worth of shares, respectively, and former CEOs John Scanlon and Mr. Casey sold $23.1 million and $8.4 million worth of shares.
Adding to the anxiety facing many laid-off workers is the dearth of jobs, especially in the once-hot telecommunications industry, where hundreds of thousands have lost work. "Here these people who are making millions and millions of dollars do well and they come and make middle class and hard-working people suffer so," Ms. Ghazle says.
The payouts to Global Crossing executives were approved by the board of director's compensation committee, which said it used Global Crossing's revenue and cash-flow targets to assess bonuses. But with the company's revenue under scrutiny by the SEC, it is unclear to some whether those targets were ever met. "If you look at the annual incentive plan, it's tied into revenue growth, so it could be that they overpaid these executives," said David Leach, national director of Bucks Consultants, a compensation consulting firm in New York.
Becky Yeamans, another company spokeswoman, says the company discloses executive compensation as required. "Our board of directors determines executive compensation and that compensation takes various forms and reflects our need to obtain the skills and experience necessary for leadership roles in our business," she says. Global Crossing officials say that companies typically bar employees from getting severance payments in a lump sum and that the company did not foresee filing for bankruptcy when the policy was put in place.
Michael Conway, an attorney who represents former employees in the Global Crossing bankruptcy, says many workers are owed $50,000 to $100,000 in severance. Global Crossing says it was legally required to cut off severance and medical benefits when it filed for Chapter 11 protection. But Mr. Conway said the company could have used the $600 million it had in cash at the time it declared bankruptcy to pay employees.
Peter Lacalamita, who lost his job with Global Crossing late last year, says he is "flabbergasted" at what happened. The former head of bandwidth trading says he was supposed to get up to 100% of his base salary as a bonus at the end of 2001. Instead of a check, he got a pink slip and was told his bonus wouldn't be coming. "This was once a great place to work," he said. "How can it be that all the shareholders and employees get wiped out and all these other guys make out like bandits?" |
