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

Huh?

[Anonymous Coward]

They be smoking crack? More bonuses? What the fuck for?

seperate but not equal

[intermodal]

I don't see huge amounts of money being given to individuals who royally fuck their finances and claim "accounding errors" for huge debts. That's fraud, my friend. If WorldCom were a person, they'd be doing time. They should be disbanded with all speed. And if not, then businesses are liable for less than a human. Therefore, if a human is more responsible for their acts, then a human should therefore be also offered more protection under the law against such entities with such limited liability and unlimited lifespan. My $.02.

Great Idea

[wandernotlost]

WorldCom will use the money for incentives to retain 325 employees, mostly sales and service people in its MCI and network and products services units.

Which, of course, means that $1M will be split among the 325 employees, with the remaining $24M going to the executives for the brilliant idea of giving out bonuses to retain good employees.

Wait... who's putting up the money?

[Dr. Spork]

So being under bankrupcy protection, does this mean that the money is coming from the government i.e. taxes? Hmm...

I know this isn't a political decision but a legal one, but this sort of thing still pisses me off. Let someone buy the remains of the company, and if they want, pay for their own "recovery team" out of their own pockets. I don't get mad when my taxes go to good causes like science or welfare or public services, but I see no reason to bankroll sleazy and incompetent executives.

Of course, this may not be what's happening--I don't really understand bankrupcy law.

How about some free Starbucks coupons instead?

[xmark]

Works out to about 60 or 70 Large per "sales and service [employee]." This is BONUS dough, on top of regular salary.

Just where would these people rush off to in the current abysmal telecom job market if they didn't get the bribe money?????

And CEOs are getting paid to much?

[L0rdJedi]

Just last week we were complaining that CEOs are getting paid to much and now slashdot is saying that it's a good thing that they get to give out $25 million worth of bonuses after filing Chapter 11? Like some other posters have already said, we know who's going to get the big bucks out of this bonus, the same executives that drove the company into the ground in the first place.

This is fair and appropriate

[solman]

When a company goes into bankruptcy, key employees who are capable of getting a job somewhere else, usually do.

This mass exodus of employees would massively decrease the value of Worldcom, which appears likely to emerge from bankruptcy.

Giving the employees bonuses that are contingent on remaining with the company is the best way to ensure that this exodus doesn't happen.

The judge's job is to maximize the value of Worldcom, thus making sure that Worldcom's creditors get as much money as possible.

SBC, in addition to being a creditor, is also a competitor. They had an interest in decreasing Worldcom's competitiveness, so they opposed the bonuses. The Judge (and tellingly, most of Worldcom's creditors) saw through this and supported the bonuses.

Re:This is fair and appropriate

[Fastball]

The judge's job is to maximize the value of Worldcom, thus making sure that Worldcom's creditors get as much money as possible.

So Worldcom's creditors should expect $25 million in the near future? I'm not trying to troll; I want to understand the logic. Yes, the judge has to ensure that all assets are revealed and accounted for. I don't see how he should ensure bankroll for a bankrupt company, especially when we all know that bonus dough is going to a select few at the top of Worldcom's food chain. I mean fuck, what about the folks that put in an honest day's work, who depended on the decision makers at the top to at minimum not assfuck their company?

I'm starting to sound like Michael Moore, and for that I truly apologize. But let's call a spade a spade.

Re:This is fair and appropriate

[Justin Cave]

I believe the logic goes more as follows--

Worldcom, though bankrupt, has assets now with value v0. Some of these assets are tangible, i.e. fiber cable, servers, etc, with value v_tan0. Some of these assets are intangible-- i.e. the top sales guys, with value v_intan0. By definition, Worldcom's current value is

v0 = v_tan0 + v_intan0

When Worldcom declares bankruptcy, the servers and whatnot stay with the company and can be sold off if the company is liquidated. Worldcom, however, doesn't want to be liquidated, which would throw away v_intan0. They believe that they can provide more money to their creditors by reorganizing, where they'll be able to use both tangible & intangible assets to generate money to pay off their debts.

Value of liquidated WorldCom = v_tan0
Value of reorganized WorldCom = v_tan0 + v_intan0

The problem comes in that the intangible assets aren't likely to stick around of their own volition. I'm sure Worldcom's top sales folks could get jobs with a much stabler company pretty quickly if they walked out. As the intangible assets depart, the value of Worldcom's intangible assets decreases by v_desertion. The company would then have a value v1 of

v1 = v_tan0 + (v_intan0 - v_desertion)

Thus, WorldCom asks to spend $25 to keep their intangible assets around. Basically, they're transferring $25 million of tangible assets to the intangible assets. The new value of the company, v2, assuming that the bonuses cause v_desertion to go to 0.

v2 = (v_tan0 - $25) + v_intan0

The judge has to compare v1 & v2 to see which leaves more value in the company for creditors. If v1 > v2, the bonuses are a bad idea. If v2 > v1, the bonuses, while decreasing the value of the company from its initial value, are good for the creditors.

Re:This is fair and appropriate

[solman]

WorldCom is clearly worth many billion dollars, even in its present form. That will be divided amongst the creditors (either as cash, securities in a new WorldCom, securities in an acquiring company or some combination of all three)

WorldCom's creditors can reasonably expect that this $25M expenditure will ultimately increase the value of WorldCom by more than $25M. This is what the Judge was saying when he approved the deal.

Keep in mind that most of the value in any company is in its people, processes and knowledge. Hard assets represent a small part of the equation. MOST of the creditors' potential for recovering their investment lies in the hope that the profitable divisions of WorldCom (and there are many) will retain their key people.

The Judge has to evaluate the cost of NOT allocating the bonuses (people leave, and the business becomes worth less), and compare it to the $25M cost. Judges DO nix deals like these when they don't make sense. $25M is very little in comparison to the value of the (soft) assets that are being protected.

Re:This is fair and appropriate

[Lumpy]

What you say is very unlikely... it is rare for a company to emerge from bankrupcy even a chapter 11 reorg.

A mass exodus will happen because people working there are finally hearing about the underhanded crap they all specualted and heard in the rumor mill... seeing it in newspaper headlines make you fly the coop faster than anything else...

Finally.. these "bonuses" are certianly not going to anyone who has the ability to raise the company from the ashes... the techs in the field, the Sysadmins that worked 18 hour days for years on end, and other employees that are the real reason a company moves and makes money will never see anything but a token gesture... while I guarentee that "high level executives" all will get hefty bonuses... these same idiots and thieves that made the decisions to destroy the company already.

you want to save worldcom? fire the top 3 levels of management right here and now. everything from the vice presidents on up. get a management team in there that has a clue about business and is actually interested in something silly like getting the company to be Number one in customer satisfaction, service and technology... if you do not focus on the customer then you fail, and fail horribly... somehow all the telcoms forgot this basic fact of business.

"The customer is always right.... even when they are wrong"... anyone that says otherwise is a complete idiot.

Re:This is fair and appropriate

[solman]

1. When large public companies with profitable units go bankrupt, they almost always either re-emerge from bankruptcy, or are sold for substantially more than asset value. Even grossly unprofitable concerns (witness Exodus) are able to fetch a substantial premium to asset value by keeping the key employees in place.

It is flat out wrong to suggest that keeping key employees in place does not have a massive positive impact on value to creditors. For proof, you need look no further than the frequent endorsement of these bonus packages by creditors. They are looking out for their own best interests when they do this. Its their money that's ultimately paying these bonuses.

2. As I mentioned elsewhere, these bonuses are standard practice. Key employees are likely to be made aware that retention bonuses are in the offing before they make alternative employment plans.

3. Right now WorldCom executives have to make a series of difficult decisions on how best to wind down unprofitable operations and prepare profitable ones for sale or re-emergence. Tens of thousands of jobs are at stake. Very complicated negotiations amongst many different classes of creditors are required. Much of the top two levels of management are gone. Firing the remaining managers would plunge the company into chaos, while the new managers spend many months learning enough about the organization to figure out what to do. Its bad for the creditors, bad for the customers, and would most probably cost many thousands of innocent employees their jobs. I understand your emotional reaction, but its terrible policy.

4. This is going to sound harsh, but sysadmins can be replaced. If one quits, another can be hired without significant cost to the organization and its valuation. Working 18 hours a day is great dedication, but it doesn't make them irreplacable. In a multi-billion dollar business like WorldCom, there are many upper level management people whose sudden disappearance, in the middle of a massive restructuring, would cost large quantities of money. (And the more executives that leave, the more important the remaining executives become). Fair or not, ultimately the marginal difference in valuation created by firing a high level executive is much larger than the valuation change produced by firing a sysadmin.

Re:Heh

[tanveer1979]

It's nothing less than legalized robbery.

yes, if we did it.... robbery. But they are rich. They robbed the common investor.. thats it. For the lawmaker the layman doesn't count. Democracy was supposed to be "for the people, by the people, of the people"
Now its just "Far the peple, buy the people, off the people".
It is really pathetic that the same people who ruined the lives of thousands of small investors are getting bonuses.

Read the Article.

[Troy H Parker]

the $25Mil is for the "Sales and service" teams, the "employees" not the Pigs at the top. You need to provide an incentive to good workers to keep rowing while the ship is sinking.

not the same people

[bskin]

judging from the comments here, people don't seem to be getting this.

these *aren't* the people who committed the fraud. those people are gone. these are people who have come in afterwards and are trying to save the company. these are people who more than likely could easily go somewhere else and get more money. they're trying to give them incentive to stay and do the work that needs done. if you think the damage done to investors and employees is bad now, just see how bad they'd be screwed if the company completely liquidated.

Re:not the same people

[toddhisattva]

these *aren't* the people who committed the fraud. those people are gone.

Wow! A few token arrests and some people think the problem is solved.

I watched MCI burn for a year. Every single manager was "in" on it. I doubt the Clubs Fed have room for all of the truly guilty. I know there aren't enough honest people left at WorldCom for the company to function.

But as long as simplistic idiots are impressed by a handful of perp walks, most of the guilty can get even more money. Hope you like it that way.

disband WorldCom - Not good

[pipsqueak]

> I don't see huge amounts of money being given to
> individuals who royally fuck their finances and
> claim "accounding errors" for huge debts. That's
> fraud, my friend. If WorldCom were a person,
> they'd be doing time.

You have no idea who the bonuses are being paid to and whether they had anything to do with the past Fraud so don't assume because a company was previusly run by crooks the people left are the same.

The board members responsible are already currently enjoying the hospitality of the FBI... probably with a view to getting some juicy info on Bernie Ebbers himself.

> They should be disbanded with all speed. And if
> not, then businesses are liable for less than a
> human.

Please... there are 60,000 people left working for WorldCom. All normal people with families, homes and lives they don't want turned upside down. Do you really want to see all those lives ruined because some greedy &*%£ higher up decided to commit fraud and run a company into the ground for their own benefit.

The bankruptcy protection process is designed to weed out the unprofitable parts of a business, re-organise the employees to support the profitable bits thereby protecting the jobs of those who stay and maximizing the return for the previous creditor, which you hope is the best result for all.

> Therefore, if a human is more responsible
> for their acts, then a human should therefore
> be also offered more protection under the law
> against such entities with such limited
> liability and unlimited lifespan. My $.02.

Now... this I do agree with. Compare some European countries where governments will pay healthy redundancy money or have very strict workers councils that mean you can only make employees redundant when absolutely necessary.. against the situation in the US where you can be made redundant on some execs whim at a moments notice. That's not good for the poor US employees.

That said, Europe doesn't have a bankruptcy protection process for companies like the US. If you ruin your company in Europe, the bits get sold to the highest bidder and everyone loses their job. Look at poor KPNQwest.

Genius of Capitalism, my arse

[ph1ll]

I thought the "genius of capitalism" was that people were free to fail. The idea being that those who are no good leave the stage.

If these executives destroyed the company, why are they being asked to stay?

What about the expression

[k98sven]

"You got us into this mess, you get us out!"

The company does well, the bosses get bonuses.
The company does poorly, the bosses get bonuses.
The company -files for bankruptcy- the bosses get
even bigger bonuses..

Why do they even call it a bonus?

I see they learned from thier mistake.

[SphynxSR]

This time they let a judge ok over spending.

ReRead the Article.

[Anonymous Coward]

These are indeed high-level folks. Think about the math: $25,000,000 / 325 employees = almost $77,000 each.

I worked there. I know.