Eighteen executives at Nortel Networks Corp. were granted about $7.7-million (U.S.) worth of stock in late July — equivalent to nearly a fifth of the company's profit this year — in a special bonus program that was met with mixed reaction from investors and analysts.
"Power and position have rewards — and this is the reward," said Tom Lauria, an independent analyst at Avtera Management LLC in New Jersey. "When so many employees have lost their jobs, there has to be some correlation to what's been felt by the rank and file."
Nortel said the special stock bonus program — which exists above and beyond a previously announced "return to profitability" bonus plan — is essentially to reward top executives for managing the company well under industry duress.
The Brampton, Ont.-based communications network equipment maker this year posted its first quarterly profit since 1999. Most observers say it has done a far better job handling the steep industry slide than its archrival, Lucent Technologies Inc. of Murray Hill, N.J.
Duncan Stewart, a partner at Tera Capital Corp. in Toronto and a Nortel shareholder, said it bothered him that the special stock bonus wasn't more clearly disclosed, but he wasn't terribly upset.
"Part of me wants to go, 'Hey, that's my money,' " Mr. Stewart said.
"But it's not egregious. It's not undeserved."
In January, Nortel started a restricted stock units program for 18 executives, including Frank Dunn, president and chief executive officer. In effect for three years through the end of 2005, it is based on company performance and measured by four financial targets, what Nortel called return on sales before tax.
On July 28, Nortel's board of directors decided the first target had been met.
According to the Web site for the U.S. Securities and Exchange Commission, the executives received about 2.6 million of restricted stock units, exchangable for one common share apiece, and worth about $7.7-million last week when granted.
Nortel kept the equivalent of about two million shares worth about $5.9-billion to cover taxes.
Mr. Dunn's special stock bonus was worth about $1.15-million. Pascal Debon, president of wireless networks, received a stock bonus worth about $690,000. Wireless is Nortel's largest division, this year accounting for 41 per cent of total sales. The third-biggest stock bonus, handed to optical networks president Brian McFadden, was worth about $560,000.
"The objective of the program is to retain and [motivate] key executives to drive significant business performance over a sustained period," said Tina Warren, a Nortel spokeswoman.
Nortel announced its separate return-to-profitability bonus plan in 2002, designed to be a "rallying point" for workers, Ms. Warren said. Sixty per cent of this has already been paid to executives. Figures haven't been disclosed. Most of the company's 36,000 workers also received a one-time profitability bonus at the end of the first quarter.
During the industry collapse, Nortel laid off about 60,000 people.
In the first six months of this year, Nortel sales fell 17 per cent to $4.73-billion from $5.69-billion in the year-ago period last year. The company made $40-million, or 1 cent a share, better than the $1.54-billion or 46 cents lost last year.
The stock closed at $4.10 (Canadian) yesterday on the Toronto Stock Exchange, up 63 per cent so far this year but still down 65 per cent since the start of 2002 and 97 per cent from its July, 2000, all-time high.
The special stock bonus program and return to profitability bonuses come on top of regular salaries and the standard issuance of stock options. Mr. Dunn was paid $825,000 (U.S.) last year, with no bonus, and was issued 750,000 options exerciseable at $8.27 (Canadian).
Ross Healy, president of Toronto-based Strategic Analysis Corp., said the special stock bonus was "well justified."
"It's a little early to say the company is out of the woods but it's not too early to say they've done a superb job of squeezing costs," Mr. Healy said.
One New York-based analyst, who asked not to be named, wasn't impressed.
"They've done a good job of turning around the company," he said. "But [the extra stock bonus] is a little excessive in today's environment."
© The Globe and Mail
Only GlobeinvestorGOLD combines the strength of powerful investing tools with the insight of The Globe and Mail.
Discover a wealth of investment information and and exclusive features.
