WorldCom Wins $25M Bonus Judgement

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.

Comments

i just hope

[Anonymous Coward]

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

Thats Almost $77,000 Per Employee!

[schave]

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

Wow.

Re:Thats Almost $77,000 Per Employee!

[Phemur]

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

Re:This is fair and appropriate

[deblau]

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.)

Re:This was funny the first time it happened

[solman]

[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].