Nortel Insider – by Desk Jockey

I’ve been gone for a while, but this most recent article just sickened me even more: Nortel exec gets lucky with deferred income withdrawal From the news posting:

Richard Lowe, the top Nortel Networks executive responsible for carrier network operations, made a well-timed withdrawal of funds late last year from a deferred compensation fund that Nortel provides for high-income U.S. employees.

Nortel disclosed in its annual report earlier this year that he took out $1,701,043 U.S. less than two months before the bankruptcy filing of Jan. 14.

Meanwhile, other employees who weren’t so “lucky” and didn’t make a withdrawal prior to the Ch.11 filing were given the short end of the stick, being told this by HR:

Elena King, the senior vice-president for human resources, told him in a letter last month: “I regret to inform you that it’s become clear that there are no options: Under the terms of this plan, all non-qualified deferred compensation funds are part of the general assets of the company, and therefore are subject to claims by all company creditors.”

Yet another example of those at the top manipulating the system and the rules for their own personal gain. Let’s be real here, there is no such thing as luck. Mr. Lowe’s “well-timed withdrawal” was almost certainly the result of some sort of insider information, but unfortunately there will not be enough evidence to prove this in a court of law.

Meanwhile, hardworking and loyal employees who were kept in the dark and told to keep their heads down suffered from the consequences of a dysfunctional management and inept BoD.

The Nortel Executive Management Team plans for the imminent turnaround of the company.

Remember all that talk about Nortel’s “greatest asset being its people?” Well this week we found out once and for all that Nortel management does not share this view.

In their latest example of “the ends justify the means” actions Nortel management has apparently chosen to break the law and pay the fine instead of treating UK employees with the respect they deserve, simply because this option benefits management more!

The issue stems from the lack of a “90 day consultation period” which is the same as a notice period. Instead these employees, some of whom had been with the company for many years, were given 2 hours to pack up and get out. While Nortel has been doing this in North America ever since filing for Ch.11 over in North America they are allowed to do so while under Ch.11 protection.

In the UK it is a different story. Even while under Administration certain rules apply when laying off many employees one of which is that employees be given a 90 day consultation or notice period. However the fine for breaking this law is a mere £5000, much cheaper than actually having to follow the law and give employees the proper consultation period!

If Nortel management really cared about their employees they would follow the law. But we know that isn’t the case as demonstrated from previous incidents and so perhaps it wasn’t surprising that they decided to deliberately break the law and just opt to pay the measly £5000 fine instead!

This is yet another in a long line of incidents where Nortel has demonstrated contempt for those very employees that helped build company that they eventually destroyed. Even after you are laid off their game does not end there. Nortel HR in the US has been using questionable methods in order to trick laid off employees into signing away their right to severance by making some vague promise of allowing pensions to be accessed quicker. They are able to do this because they know the fragile financial position many employees are in. Instead of helping out in this situation they choose to exploit it for their own benefit. Their aim is to make sure as many employees sign away their right to severance as possible, so that the chances of them disrupting the Ch.11 proceedings are reduced.

It is also not surprising that they decided to hide behind their consultants to let them take care of the whole matter. This time they are using E&Y to deliver the layoff news because they don’t have the decency or respect to tell the employees themselves.

Nortel Executives and BoD successfully argue in favor of bankruptcy bonuses. http://www.bloomberg.com/apps/news?pid=20601082&sid=a0TBFPiL4Luc

Robert L. Kenas was a loyal and hardworking Nortel employees who received a severance package in December only to be betrayed by Mike Z and the rest of the executives when they prematurely filed for Ch.11 in order to ensure they could profit off the downfall of Nortel.

A few days ago he wrote an impassioned letter to the court urging them not to reward incompetence, greed and downright unethical behavior. Please read it.

The letter clearly outlines in plain language the hardships that have been forced upon the rank and file. It also clearly outlines the malicious and deviant behavior of upper management in their attempts to obtain as much money from the carcass of Nortel as possible, all while mistreating, lying and defrauding loyal employees. (See their latest attempt to defraud laid off employees by trying to trick them into signing away their right to go to court for severance!)

Unfortunately as is so often the case in society nowadays the court ignored his message and decided to go with the big guys. In retrospect he had little chance of imparting any influence thanks to the high priced lawyers the executives hired using company money in order to argue their case.

Nonetheless, I stand and I applaud you Mr. Kenas. You’ve said exactly what is on the mind of so many neglected and abused employees and even though the court may have ignored you, there are many out there who have not.

In a stunningly shameless move that reeks of the consistent greed that Nortel management has displayed, executives won the right to receive $7.3 million in bonuses at a time when rank and file employees are being told their severance won’t be honored and their pension is at risk.

The $7.3 million will be distributed as follows: $5 million would go to 5 executives in the US ($1 million per person on average), with the remaining $2.3 million going to 3 executives in Canada.

This is all part of the fraud that is KEIP bonuses which I talked about earlier. Previously the court had turned down Nortel’s request for KEIP for the senior leadership (the 8 executives who will receive the $7.3 million above) because the creditors wanted to see the non existent business plan before allowing more money to be flushed down the toilet with these executives.

Well, it turns out Nortel executives would have none of that as they believed they were entitled to the bonuses even if they were too incompetent to come up with a business plan. So they hired the best lawyers (using Nortel funds of course) to pull the wool over the court’s eyes and get their treasured bonuses approved. This was predicted by Nortel Downfall Part 9 but again I stress the goals of Nortel Downfall are parody, humor and exaggeration, not fact. This goes to show the level of absurdity the executive is willing to stoop to in order to enrich themselves.

KEIP has been something that has worried me ever since I first read about it in the initial BK filing back in January. Back then we did not know the details but we knew it had the potential to provide an incentive for the executive to further destroy the company and profit off the downfall at the same time. When the details became known it was clear that they had been planning for quite some time.

The goals that the executive have to accomplish in order to gain their bonus are laughable. Basically everything is tied to cost cutting, especially in North America. If they layoff more employees and revoke more severance they cut costs and thus directly benefit off of the hardships of others. In fact laying off more loyal employees benefits them more since the longer working employees will have larger amounts of severance to revoke and thus are better targets for cost cutting. This sort of behavior is NO DIFFERENT from the scumbag actions of AIG executives, other than the scope being smaller. Don’t think for a second that these losers wouldn’t enrich themselves with a government bailout if given the chance.

These sentiments were echoed this morning by Ms. Diane Urquhart who had the opportunity to appear on Canada’s AM news program to highlight the corruption of executives in their scheme to profiteer off of this whole fiasco. Please watch the video for the full story. Some have said her criticism was harsh. I say that her commentary was quite restrained, considering the circumstances! It’s about time these crooks received their deserved shame.

With all the news of the recent week it is becoming clear that Ch.11 was a ploy from the beginning to ensure that executives would continue to profit no matter what the outcome. Consider for example what would have happened if Ch.11 had not been declared: With the poor Q4 2008 results it’s likely no one would have received much of a bonus since bonuses are normally tied to performance.

Realizing this, management decided to opt for Ch.11, screwing over countless employees all so that they would have a chance to continue getting bonuses. Under Ch.11, the game changes: The normal rules no longer apply. Rather than having to make their case for bonuses to shareholders all they need to do is convince a judge that they deserve the bonus. As we can see, it’s much easier to do this! Essentially management has rewritten rules to ensure that they always come out on top no matter what.

What’s even more insulting is the fact that Nortel management claims they need the bonuses to improve morale. But whose morale are they talking about? Certainly giving big $$$ to executives improves their morale, but it has the exact opposite effect on the rank and file. Just how would you feel if your hard earned severance had been revoked, only to see it redistributed “up the food chain” to some useless and incompetent executive just so he/she could get a second summer home?

Furthermore the argument that bonuses are needed to “retain top talent” is a joke. There is no “top talent” among the executives. If there was, we wouldn’t be in this situation. I dare any of the executives to leave and try to find another job elsewhere, especially in this economy. I’m sure a prospective employer would love to see your resume: “Nortel – XXXX-2009: Responsible for driving the final nail through the coffin of this company“

The impotent BoD deserves just as much shame as the executives. It was their inaction and their unwillingness to rein in the management that directly contributed to this crisis. They are clearly in the mindset that being on the Nortel BoD means you are on a gravy train and can collect your 6 figure paycheck without doing much. Management seems to understand this so it’s no wonder that the BoD hired their own lawyer to argue in favor of the executives:

“The board cannot properly function without the advice of its senior, experienced, leadership team,” Lyndon Barnes, a lawyer for the Nortel board, told the judge in Toronto. “This is an enormously complicated task.”

John Manley is perhaps the best example of the uselessness of the BoD. This man collects $215,000 for his “part time job” as a Nortel director (see SEC 10K filing here), while his full time job is at McCarthy Tetrault, a law firm that is also coincidentally representing the most criminal Frank Dunn! Not surprisingly, Frank Dunn has his fingers in this whole mess too and is arguing that Nortel should pay for his legal fees in his upcoming trial for being the biggest fraud at Nortel!

Not surprisingly the Nortel Propaganda machine was out in full force today trying to spin this story of excess and greed in to one of universal reward for all employees:

“First of all, it is important to note that the vast majority of employees at all levels are already on a quarterly incentive plan aligned to the short-term goals of company,” said Nortel spokesman Mohammed Nakhooda.

The incentive plan mentioned here is the Annual Incentive Plan (AIP) and it is basically going to be leftovers compared to what the executives are making. A few million is basically spread over the rest of the 19,000 employees resulting in a few hundred dollars.

KEIP, by now you’ve probably heard of this infamous term. It stands for a Key Executive Incentive Program and it is a way that companies in Ch.11 typically manage to continue to hand out bonuses to executives and other members of senior management.

Why on earth would you continue to give bonuses to the very people who lead the company into Ch.11 in the first place? Well, the idea is that because the company is in such a fragile position an “incentive plan” is needed for “key employees” so that they don’t leave for greener pastures, causing a death spiral. This idea isn’t completely without merit but in the case of Nortel it is damn near a crime and a further slap in the face of the many employees who have been terminated without severance!

Thanks go out to user felixmk at the AAN blog for taking the time to uncover this latest profiteering attempt by the executive team. They uncovered it by reading through the “Dockets” or court records of what is going on during the Ch.11 proceedings.

Here, I’ve presented a brief outline of what’s available in Docket 389 as it relates to KEIP and KERP in order to give an overview of what’s going on. But please read it yourself for the full picture!

Terms:
KEIP: Key Executive Incentive Plan. This is the one for the executives. It covers 92 executives: 8 members of the Senior Leadership Team (SLT), 82 members of the Executive Leadership Team (ELT) and 2 other officers. Total payout of KEIP is estimated to be $23 million.

KERP: Key Employee Retention Plan. This is the one for non executives and non insiders. This covers 880 employees of JCI 6, JCI 5 and JCI 4. Employees below JCI4 “will not be invited to participate” which of course means they don’t get anything. The 880 is split the following way: 200 JCI6, 538 358 JCI5 and 322 JCI4. Total payout under KERP is estimated to be $22 million.

Bonus Amounts: KEIP ensures the biggest bonuses go to the executives. Members of the SLT would be eligible for bonuses of 100%-183% of their annual base salary while members of the ELT would be getting 48%-112% of annual base as bonus. Considering these people already draw the biggest salaries at Nortel, you can see that the bonus money is heavily concentrated among them! Prime example of the rich getting richer!

KERP bonuses for JCI 6, 5 and 4 are a bit less impressive. JCI 6 will be eligible for a bonus of 26%-44%, JCI5 20%-35% and JCI4 13%. Again, nothing for people below JCI4.

Conditions of getting KEIP/KERP: KEIP is tied to 3 “milestones”:
1 – The achievement of North American objectives of Nortel’s cost reduction plans.
2 - The certain parameters that will result in a leaner and more focused organization.
3 – The confirmation by the court of the restructuring plan (in US and Canada) along with the completion of 1) and 2).
25% of KEIP would vest from completion of milestone 1), a further 25% upon completion of 2) and the remaining 50% would vest with milestone 3)

Notice how the milestones are worded: Basically, the executive achieve their goals and get big bonuses by laying off more employees! So, while they harp on about how much they “understand your pain” in reality they will benefit from it! Furthermore, milestone 3 is nothing more than a token goal that will likely be automatically fulfilled upon completion of 1 and 2, thus ensuring full payout of KEIP! 

Note that this KEIP plan does not encourage the survival of Nortel. All of the goals aim to achieve is cost cutting! There is no mention of improving revenue, profit margins or making the business more healthy. Instead, there is a direct correlation between executive bonus and cost cutting, eg laying off more people without severance! So this makes it clear they do not care about Nortel the company but only themselves.

Payout of KERP is similar to KEIP however they are milestone dates that ensure payout as soon as these dates are met, regardless of whether the goals are met. For example by June 30th 2009 25% of KERP will be paid out no matter what, by December 31 2009 a further 25% will be paid out and by June 30th 2010 the remaining 50% will be paid out. These are guaranteed payouts.

This is the sort of stuff they don’t bother to tell you in the Zmails, GIS’s and other corporate communications. Instead they leave it up to YOU to find out this information yourself by wading through the tons of legal documents (Dockets) where they hope they can hide this clear evidence of their profiteering!

The Docket also shows that Nortel claimed that KEIP was needed in order to offset the benefits from the terminated equity plans. Such plans had no value before as they were tied to worthless NT stock! So their argument is pure nonsense. Furthermore, they talk about the need to improve morale when it has been clear that they have not cared about employee morale for some time. Additionally, Nortel has petitioned the court to get KEIP approved ASAP.

They act as if KEIP is needed to keep this executive team with Nortel, as if they they have lines of other companies waiting to poach the defective and ultimately destructive members of upper management! In reality, no company would want anything to do with these folks after seeing what they’ve done to Nortel. This exposes the reality behind KEIP: A last ditch attempt by the executive to extract the remaining money from the company for their own personal greed!

This is in fact the sad reality, KEIP is worse than we thought.

Richard Lowe, President of Carrier Networks recently sent an email to all the employees under him in an attempt to demonstrate the same openness and transparency that Mike Z has: Link to All About Nortel article with the full text of the letter.

Let’s have a quick analysis of the contents:

The past several weeks have been the most challenging of my career, and no doubt they feel the same for many of you. While things are difficult from where I stand, I know that in many ways they are even more difficult for you and your families, and I thank you for hanging in there and continuing to fight this difficult battle together.

Translation: My bonus won’t be as big for 2008 so I’ll have to defer some spending, like a new beach house or something. Things must be way worse for you guys! To those we didn’t terminate: Thanks for sticking around and remember that we’ll fire you if we find you looking for an opportunity elsewhere.

I’ve now spoken with virtually all our tier one customers, and most of our tier two and three customers, and they are universally supportive of Nortel and the steps we’re taking.

Translation: Please don’t read the Q4 and Year End results due out on monday as they will reveal the full extent of our lies.

Despite our disappointment with Verizon’s phase 4 announcement, our LTE solution has gained traction with KDDI and TMO International. We must shake off any disappointment and focus on meeting our LTE program and trial milestones while we continue to explore partnership options for our LTE solution.

Translation: Please ignore the utter abject failures of upper management in destroying Nortel’s credibility and continue to work hard so that we executives can continue to extract every last penny, nickel and dime from this company.

Incentive programs like those announced today are aligned to both our creditor’s goals to quickly and cost effectively restructure the business, and our own to ensure that employees are encouraged to drive forward in the face of an extremely difficult environment.

Translation: Yay! KEIP will help make up for my bonus short fall this year! Guess things won’t be that bad for me after all!

I’d like to thank everyone that is being impacted for their many contributions to the company, and for the sacrifices they’ve made on Nortel’s behalf. I ask the rest of you to be supportive of these individuals at this difficult time and at the same time to remain focused on our business priorities as these changes take place, so that one day we can perhaps welcome our co-workers back to a revitalized and growing Nortel – one that the rest of us are tasked with recreating.

Translation: If you don’t continue to work blindly hard for us, you’re doing a great disservice to those terminated without severance! Yes, that makes perfect sense!

How this man can continue to lead is beyond me. This corporate shill ignorantly assumes that those betrayed and mistreated employees who were terminated without severance will be begging and crawling to rejoin Nortel CN under his leadership should any opportunity arise. He acts as if these people cannot live without Nortel and that Nortel is life for them. Furthermore, he even suggests that those remaining workers are wholly responsible for whether their laid off counterparts are given a chance to return! Yet another example of management shoveling the blame onto the rank and file.

Such behavior is more outrageous than any Youtube video someone could come up with!

Part 7 has been rushed to production so that those laid off can have one last chance to watch it before the soulless executive ruthlessly terminates them without severance and kicks them out on to the street.

Irregardless of their hateful actions, don’t let them take away your dignity. YOU are who you are no matter what they’ve done to you or how shameful they have behaved. Don’t lose your pride!