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WorldCom Wins $25M Bonus Judgement

Posted by ryuzaki0 on from the pennies-from-heaven dept.

tekBuddha writes "According to this article at CNN.com WorldCom has won a suit allowing them to pay $25 million in bonuses to certain 'key employees' that are necessary for their re-organization." They hope to be out of bankruptcy protection by mid-2003. Hopefully this will help them retain important members of their sales and service teams.

11 of 186 comments (clear)

  1. i just hope by Anonymous Coward · · Score: 5, Informative

    that those key people aren't the ones responsible for buying the $5k shower curtains for their $12 million NYC apartment.

    $25 million tho ... eh, who cares. they'd need to have like $250 million to waste before the price of my T1 through them comes down any. $25 million is a drop in the bucket.

    non-dark-fibre-lighting-bastards

  2. Thats Almost $77,000 Per Employee! by schave · · Score: 5, Informative

    $25 million / 325 key employees = $76,923 per key employee.

    Wow.

    1. Re:Thats Almost $77,000 Per Employee! by Phemur · · Score: 5, Informative
      Unfortunately that's not how it works. Here's the typical breakdown for bonuses:

      • 75% goes to the top 5 employees (CEO, CFO, etc)
      • 15% goes to the next top 50 employees (sr VPs, directors
      • 10% goes to the remaining "key" personnel, which is typically only a fraction of the employees

      That means that the sales and service employees of WorldCom would get about 9250$ each, and the top 5 execs would share over 18.5 million, or about 3,750,000

      (Note: I read this on Forbes or Fortune, but I can't find the article for reference. I'll keep looking.)

      If you think this is absurd, consider this: The Ottawa Business Journal released their annual CEO compensation report. It's basically the breakdown of what CEOs and other COs make in the city of Ottawa every year. This year they had to produce two statistics: one that included 5 JDS Uniphase executives, and one that didn't. This was required because the total revenue for the 5 JDS execs on the list was 14 times the compensation for the other 120 non-JDS execs on the list. Consider:

      Average Salary (inc. JDS execs): 6.3 M$
      Average Salary (not inc. JDS): 430 K$

      Total Compensation, JDS execs: 724 M$
      Total Compensation, remaining 120 execs: 51 M$

      (And that includes the executives from Nortel, Corel, Cadence, Cognos, and bunch of other fairly large (1000+ employees) companies.

      Ottawa Business Journal

      It remains to be seen what WorldCom does with this money, but I predict it will be more of the same.

      Phemur

  3. Re:Wait... who's putting up the money? by Alex+Belits · · Score: 3, Informative

    No, it's coming from investors, who would sue them otherwise for such a misuse of their money.

    --
    Contrary to the popular belief, there indeed is no God.
  4. Re:This is fair and appropriate by deblau · · Score: 5, Informative
    The judge's job is to maximize the value of Worldcom

    Technically speaking, this is not accurate. It's the job of the debtors (Worldcom, et al) to maximize the value of Worldcom, so as to satisfy their creditors. IANAL.

    The judge's job is to make sure that Worldcom files a reorganization plan under Title 11, Ch 11 of the US Code, whose purpose is to regain financial stability, and that the plan is acceptable (within some limits) to all creditors. According to the article, one creditor (SBC) objected to the plan, but the judge had the authority to overrule the objection under 1129(a)(7)(A)(ii), as long as SBC

    will receive or retain under the plan on account of such claim or interest property of a value, as of the effective date of the plan, that is not less than the amount that such holder would so receive or retain if the debtor were liquidated under chapter 7 of this title on such date,
    and assuming subparagraph (B) doesn't apply. Which it might if SBC holds any liens on property in which Worldcom has an interest. This information would be contained in the 521(1) report, but it hasn't even been filed yet, because Worldcom's financials are too damn complicated. (See here for more details. Click the folders for "WorldCom Bankruptcy Case", then "WorldCom, Inc.", and look up docket #1663. Basically, Worldcom have until Jan 31, 2003 to file their 521, unless they want another extension.)
    --
    This post expresses my opinion, not that of my employer. And yes, IAAL.
  5. Re:This was funny the first time it happened by solman · · Score: 5, Informative

    [Serious response to what may or may not have been intended as a funny comment].

    Bonuses like this are standard practice when an organization files under chapter 11. Enron was definitely not the first time it happened.

    HOWEVER, it is interesting to note that many aspects of Enron's retention strategy were modified. Many of the bonuses were reduced during negotiations with their creditors, and the proposed contract for Enron's CEO during the reorganization was rejected by the Judge overseeing the reorganization.

    BTW, bankruptcy judges are empowered to (and do) reverse bonus awards made by companies in the weeks leading up to bankruptcy. [I think they can go back up to one year but IANAL].

  6. Re:How about some free Starbucks coupons instead? by Detritus · · Score: 4, Informative

    The top performing sales people can walk out the door and get a job selling widgets in a week. The company can't afford to lose these people. If they don't get their commissions and bonuses, they will leave.

    --
    Mea navis aericumbens anguillis abundat
  7. Re:disband WorldCom - Not good by Tony+Hoyle · · Score: 3, Informative

    Actually we do - we call it 'administration' where the receivers take over and try to make the company run at a profit. Failing that they try to sell it as a going concern (there is legal protection that says if you buy a running business you can't sack everyone w/o paying their redundancy). Only then is the company wound up.

    This happened with KPNQwest. The problem was the whole telecoms market is in depression due to a glut of bandwidth and nobody wanted to buy it whole - I'm not even sure after they gave up and broke it up that all the pieces were sold.

  8. Do you understand the concepts... by MosesJones · · Score: 3, Informative

    Chapter 11 means that all the people they owe money to can't ask for it. Therefore they are paying this cash from that.

    Taxes don't come into it.

    --
    An Eye for an Eye will make the whole world blind - Gandhi
  9. Re:This is to feed people who work on commission by matt_wilts · · Score: 3, Informative

    I don't know about that - I worked for Wcom in the UK as a techie. The Account Managers were on between 3x - 4x salary than that of the technical staff (& I was a senior engineer). And that figure was BEFORE any commission. It's one of the reasons I jumped ship in 1997. Maybe the US is different.
    Matt

  10. Re:How about some free Starbucks coupons instead? by jaoswald · · Score: 3, Informative

    I don't think Worldcom is worried about widget sales being helped. Instead, their sales people can take their Rolodex with them to a *competitor*, and start (in order of revenue, of course), calling them and telling them yarns about how everybody with talent is fleeing Worldcom, so expect their service to go to hell quick. Better change your ISP and telephone service, before I start telling people other than my golfing buddies.

    You think selling widgets is the same as selling telecom services? That's like saying database programmers can get jobs programming embedded systems in a week. They're both programmers, right? Sure, good programmers are good programmers, but knowledge of customers and markets are valuable to have as a salesperson.