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

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.

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?????

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

[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.

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.

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?