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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.

18 of 186 comments (clear)

  1. This was funny the first time it happened by docstrange · · Score: 5, Funny

    .....when the company was called Enron. And the bonuses were awarded BEFORE the bankrupcy was filed.

    --
    Remember that you are unique, just like everybody else.
  2. 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

  3. 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 MalleusEBHC · · Score: 5, Funny

      That would only be if it were divided evenly. Most likely anyone with a three letter acronym for a title that begins with a 'C' will see at least a million of that per person and there rest of the service staff will get to bend over and take one for the company.

      Ok, say for sake of discussion the top 20 guys take a million apiece, thus leaving $5 million for 300 people. That's nearly $17k per person. If that's bending over for the company, let me be the first one to grab my ankles.

    2. Re:Thats Almost $77,000 Per Employee! by Cruciform · · Score: 5, Funny

      For gods sake, don't accept a cheque!

    3. 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

  4. seperate but not equal by intermodal · · Score: 5, Insightful

    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.

    --
    In SOVIET RUSSIA... erm...NSA AMERICA, the Internet logs onto YOU!
  5. Sales and service? by tcd004 · · Score: 5, Funny

    I called them the other day and this was all I heard.

    tcd004

  6. How about some free Starbucks coupons instead? by xmark · · Score: 5, Insightful

    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?????

  7. Two words by dido · · Score: 5, Funny

    Golden parachute.

    --
    Qu'on me donne six lignes écrites de la main du plus honnête homme, j'y trouverai de quoi le faire pendre.
  8. This is fair and appropriate by solman · · Score: 5, Insightful

    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.

    1. Re:This is fair and appropriate by Justin+Cave · · Score: 5, Insightful

      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.

    2. 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.
  9. This is to feed people who work on commission by Anonymous Coward · · Score: 5, Interesting

    Salespeople often work for very low base wages and count on commissions to make up the difference. When a company tanks like WorldCom did the sales taper off and these workers suddenly find themselves without commissions. No commissions means no rent money. There are legitimate reasons to award bonuses to sales staff. And regardless of what you techs may think, good sales and support teams are critical to the success of a company.

  10. Read the Article. by Troy+H+Parker · · Score: 5, Insightful

    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.

  11. not the same people by bskin · · Score: 5, Insightful

    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.

    --
    hot foreign sheep.
  12. Breakdown of 325 Employees by panaceaa · · Score: 5, Funny
    Here's the breakdown of the 325 affected employees:
    • 10 Ugly People for MCI Neighborhood commercials
    • 1 WorldCom Guy to ride around office on mini-scooter
    • 1 Michael Jordan to continue MCI 5-cent Sunday commercials with Donald Duck
    • 10 UUNet people to help spammers contribute to Usenet
    • 303 Telemarketers
    Without these key positions, how could WorldCom possibly go on as a going concern?!
    --
    my blog
  13. 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].