Nortel Insider – by Desk Jockey

The view from one Desk Jockey

The truth behind KEIP: How the executive plans to profit off the downfall of Nortel

with 37 comments

moneyprofiteering1KEIP, 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.

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Written by Desk Jockey

February 28, 2009 at 8:42 pm

Posted in Uncategorized

Tagged with , , ,

37 Responses

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  1. unbelievable… the continued survival of the jci 5 and above “lovehandles” on the OSM webpage. It pisses me right off that to this day, i am still as far away from the ceo in OSM as i was 10 years ago – despite there being 100k odd less employees, what the hell.

    If i can play OSM whack-a-mole (looking for JCI5s and above hiding in OSM with no direct reports, or teams of 2), then why can’t HR… wait, don’t answer that..

    Mikez, you’re making it really hard for me to continue to give a crap and do my part in this mess, you tosser.

    shizznit

    February 28, 2009 at 9:23 pm

  2. Great analysis Desk Jockey!!

    To the folks at Nortel’s CALA office in sunny South Florida, does anyone have a clue as to how many of your JCI 4 thru JCI 6 employees will make it into the KERP?

    As for the KEIP, I suppose only Barrios is a shoe-in, right? Or, is someone else able to qualify?

    Names help since the dockets don’t mention any. The point is do you think these folks in CALA deserve to be in these plans or not.

    Nortel watcher

    March 1, 2009 at 12:48 am

  3. this also applies to Europe?

    ex-i believe (years ago!)

    March 1, 2009 at 4:24 am

  4. Is there anyway of finding out exactly who these 82 people are, and name them all?

    Exasperated

    March 1, 2009 at 10:42 am

  5. Good analysis. How the heck do they get the courts to approve this stuff?? I guess judges have no idea that these people are not going anywhere and do not need to be bribed to stay on.

    kram n

    March 1, 2009 at 11:57 am

  6. As an employee of Nortel, I am also not a believer. After nearly 13 years with the company, I do not believe that the executives, who are paying themselves these bonuses/incentive payments care about more than their own salaries. These millions could be spent to keep the company going, not just the senior executives.

    M Whitworth

    March 1, 2009 at 6:25 pm

  7. Fantastic analysis, but there is one blemish – the numbers don’t add up – 200+538+332 does not equal 880, it equals 1,060. But that’s minor. What does this profile say about our management model, why are there so many more JCI5’s eligible. This isn’t a typical management model, with few on the top, and more and more people as you get lower, this is some sort of middle management spread. In that case, this would be a good time to downband some of these JCI5’s. Can somebody check into that – don’t know how we could find out(even without names) the number of JCI4,5, and 6’s. And the payout profile as well, JCI 4’s getting 13%? Megamillions, save me from this insanity!

    Fake Name inserted here

    March 1, 2009 at 6:50 pm

  8. Found it in the original document, it’s not 538 JCI 5, it’s 358 JCI 5 (numbers transposed). Which puts it back in line, 200, 358 and 322.

    Fake Name inserted here

    March 1, 2009 at 6:59 pm

  9. Fake Name thank you for that correction, this is why I encourage people to read on their own! I could be wrong I make mistakes as I am just a mere mortal.

    Desk Jockey

    March 1, 2009 at 7:04 pm

  10. Desk Jockey

    Interesting insight into Nortel’s actvities.
    Could you please contact me via email … like to include your blog in future coverage of Nortel.

    Thanks
    Paul

    Paul Brent

    March 1, 2009 at 11:11 pm

  11. Hi Desk Jockey and Friends,

    How do we stop KEIP from getting approved by the courts? What actions can we take to change this?

    I am both an employee (for the time-being) and a shareholder whom will never be able to retire. Hey, no one forced me to buy the stock – that is true.

    I think it is up to us to do what we can to ensure Nortel executives engage in ethical behaviour. KEIP/KERP isn’t in line with my ethics.

    Despite all the preaching the Nortel staff has received on Ethics and Core Values from the top, it’s interesting to see nothing has changed from Frank Dunn’s watch to Z-man’s watch.

    WHAT CAN WE DO TO CONTACT THE COURT OR MONITOR AND PREVENT KEIP AND KERP FROM BEING APPROVED?

    Please let us know if you have the answer.

    A.Friend

    March 2, 2009 at 6:20 am

  12. I like the Z-mail today:
    “As you know, rewarding and retaining key employees is a necessary and important part of our restructuring plan. Last week we announced an AIP program with quarterly payouts to ensure that the majority of our people benefit from our progress. We also announced our intent to file a retention and incentive program for employees across the company who are in roles that we believe are especially critical to accomplishing a successful reorganization, who are in positions important in client relationship management, product development or who are in critical leadership roles required to stabilize the business. We did that in the U.S. on Friday and will this week in Canada, covering NA, CALA and AP. In EMEA, the UK Administrators are responsible for decisions on these programs. The majority of participants selected for these programs are non-executives. For the selected executives, the payouts are contingent upon the achievement of important milestones.

    These programs are common practice and necessary for companies in similar circumstances. Still, they will receive much scrutiny internally and externally. I believe they are appropriate and will achieve the desired impact for the company. I am not included in these initial filings.”

    What a load of SHIT.

    I also am interesting in organizing some type of action to protest or influence the court to NOT approve this. Many of my colleagues feel the same way. What can we do, what is our best action?

    StillHereAndHatingIt

    March 2, 2009 at 10:59 am

  13. in today’s zmail… “I’m also very pleased to announce that Pavi Binning has accepted additional responsibilities as Chief Restructuring Officer (CRO), while maintaining his current role as CFO.”

    Does anyone see Mike’s resignation coming?

    joey

    March 2, 2009 at 11:51 am

  14. These Incentive and Retention packages only serve to highlight what low regard the execs have for the rank-and-file.

    I am still trying to do my best for Nortel and my fellow colleagues – but what is there to motivate me to continue to do so, other than the fact that I still want to have pride in a job well done?

    nortelgirl

    March 2, 2009 at 3:00 pm

  15. […] is very likely that Mr. Hackney is one of the 8 member of the Senior Leadership Team who stands to gain from the unethical payment of KEIP bonuses during Ch.11. A job well done, if only for personal greed! Possibly related posts: (automatically […]

  16. Notice z-mans careful wording about the bonus plans:

    “I am not included in these initial filings.”

    The use of the word “initial” makes ya wanna go, “Hmmm…..”.

    Z-man is sneaky sneaky….

    Reality Strikes

    March 2, 2009 at 10:37 pm

  17. There is a way to formally make objections known regarding KEIP/KERP — Docket 392 has the details and deadlines (March 4 at Noon, and March 13).

    http://chapter11.epiqsystems.com/viewdocument.aspx?DocumentPk=a40fd016-f00d-4a38-9405-24a4c90afbef

    Reality Strikes

    March 2, 2009 at 10:57 pm

  18. Formally making objections would mean taking a legal action which requires an attorney etc. Do you think as Nortel employees you and I have the time and money to do that? Nortel execs know that very well & that is why they go ahead shamelessly & relentlessly. It is indeed funny that while 95% of employees get $3 million 5% gets $40+ million. This is like the cruelest & most insulting act ever done by the SLT. Who do they expect to “lead” (to call themselves leaders is like comical to the third degree) when all the so called “un-invited” JCI 3 & below folks leave the company?

    The SLT & other execs know that once their Nortel job is gone, they probably wont get a job soon anywhere – so this bonus business is just a last ditch attempt to wean out every possible dollar out of the company. It is always funny how the rich always want more. But this is mounting to robbery in broad daylight.

    FrustratedRankAndFile

    March 3, 2009 at 3:15 am

  19. here is what i read: If you DISAGREE WITH THIS DECISION, please call the US BANKRUPTCY COURT in DELAWARE,302-252-2900, Case 09-10138, and let them know your opinion, If you want to have a say, here is your chance. Kevin Carey is the Chief Judge.

    sadN

    March 3, 2009 at 9:13 am

  20. Desk Jockey,

    You need a new hobby. I as everyone else hate the situation we are in at Nortel. As a manager it is hard enough to motivate our staff, this only fuels the bitterness, anger and continues the conversation. You, current and former Nortel employees and I have a right to feel frustrated, concerned and angry. However, there comes a time we need to find a way to move forward – if not for ourselves for those in our circle of influence. I can see from your work over the past few months you are very talented. Please use your talents on something more productive and beneficial for yourself.

    We-Gotta-Move-Forward.....

    March 3, 2009 at 11:09 am

  21. To “we gotta move forward”. And I suppose you’re in the group of “I believe”? If only I had some “ocean front property” to sell to you, when I’m really living in the desert!

    Give the rest of us real workers, a break, would you? – this is tearing up our lives, and the company is not going to survive – what products do we have to sell anymore – it’s mainly software now.

    Can’t get a foot in China or other places, and most companies don’t want to do business with us, for fear of not getting paid. This restructuring is just to buy time – nothing will come of it except more people losing their jobs. It’s sad too – more than a 100 year old company, and this is what poor management has done.

    Good luck at “turning the tide”. Maybe if the ones left are all “20” somethings, then you might have a shot, but if the older folks are left, they’ll just be looking to last as long as they can, just to keep getting paid, ‘cuz it’s almost impossible to get a decent job anymore for them.

    Fred

    March 3, 2009 at 5:23 pm

  22. The U.S. Trustee has filed an objection for KEIP/KERP — good reading — it is docket #396, where Judge Gross may potentially overrule the U.S. Trustee if he signs the order in docket #400.

    Docket #396 (very good read!!!):

    http://chapter11.epiqsystems.com/viewdocument.aspx?DocumentPk=0eee7f2f-06b4-4b04-a890-cdc323267b78

    Docket #400:

    http://chapter11.epiqsystems.com/viewdocument.aspx?DocumentPk=10be046c-8854-4bd1-b3a5-667c63f412b3

    Reality Strikes

    March 3, 2009 at 10:05 pm

  23. Nevermind — I misread Docket #400 — it looks like Gross overruled the U.S. Trustee’s objections.

    Reality Strikes

    March 3, 2009 at 10:08 pm

  24. First the hard ball ..”we will track you down DJ”..now come the soft ball..”you’re so talented , we could offer you Alepian’s position but sorry you’re not BB trained”…

    You’re doing just great DJ…Keep it going !

    Must Do's and Say No's

    March 3, 2009 at 10:43 pm

  25. Look at the phrasing and the language “The majority of participants selected for these programs are non-executives. For the selected executives, the payouts are contingent upon the achievement of important milestones.” Of course the majority of the participants are non executives… But the math that has been left out of the equation is that the division of the actual bonus amount… that it is going to be 23 million amongst 88 (+ or – a few) and 22 million amongst the other 880…. and of course no surprises 880 are the non executives…. yay……

    Disappointed

    March 4, 2009 at 5:18 am

  26. Disappointed,

    In the FAQ on KERP/KEIP, the participants qualification are based on:

    1) Criticality of their roles in the restructuring process…”All” employees are critical to the restructuring process according to the wording…more so at the rank and files as Z said “the biggest asset of the company”…and YET they are left out and in fact kicked out with no severance.

    Fair process ??? Of course…Only because Z, BoD and the SLT and the external consultants (Mercier, “Yes, I’ll second that”) control the selection and the scheme.

    2) Cost to replace the key roles

    Hmm, do we really need that many Pavi’s, the minted CRO during this process ?…If the SVPs, VPs, don’t believe in this company during this difficult phase , they can definitely leave..of course they wont because they will get their hands on severance either…Replacing the innovators, the engineers, the support personnel, the sale engineers who are struggling to keep this ship afloat to me is a much more challenging job. Anyone wants to leave, I’m sorry , good luck to them!.

    3) Based on latest performance

    Hmm, with a company that lost 5B for 2008 and 2.1B in last quarter alone, tons of wastes and abuse (jets), plummeting stock prices, etc..etc. In “real” world, most execs , GM, coaches would be either fired or have the dignity to step down.

    With those miserable numbers, do you think they merit a “most effective” ranking for Z and STL ..even the the lower ranking VPs, Directors…I would say NO. None of that smoke and mirror metrics on Operational margin, 48hrs, 30MSR , LSS…

    Execs if anything should be fired and not rewarded any bonus let alone retention bonus…Let them go, noone in this company will shed a tear.

    In summary, show me the profits – No profit, no bonus. Until we are out of chapter 11 (I still hope that we do), I hope the judges have some common sense to deny this plan or delay the ruling until after the restructuring and when the company starts to show some signs of life.

    Must Do's and Say No's

    March 4, 2009 at 7:49 am

  27. I just talked with someone at the bankruptcy court, and we have to write in and send via snail mail, our objections, to:

    United States Bankruptcy Court
    District of Delaware
    824 Market St., 3rd fl
    Wilmington, Deleware 19801

    Put on the envelope and letter, “In regards to” (the ff):

    Nortel Networks Inc. – Case # 09-10138-KG

    Good luck to us all in fighting this battle and getting the court to not allow “bonuses” to be paid.

    Fred

    March 4, 2009 at 1:49 pm

  28. That is great news Fred.
    How can we all come together in this activity? How can we make the objection stronger by making it obvious that this objection is from multiple people rather than one or two individuals?

    FrustratedRankAndFile

    March 4, 2009 at 1:56 pm

  29. Well, so much for trying to send an objection, ‘cuz as Reality Strikes said, the judge over-ruled the trustee’s objection:

    Well, this site/page won’t let me paste what I had copied. You’ll just have to look at the link above, for docket 400, to see the over-rule. So much for judges being fair – like they ever are. What a world we live in – don’t even have enuf time to place objections.

    Writing won’t do any good, ‘cuz the deadline is over today – Mar 4, noon EST.

    Good grief…

    Fred

    March 4, 2009 at 2:06 pm

  30. If you DISAGREE WITH THIS
    DECISION, please call the US BANKRUPTCY COURT in DELAWARE at (302) 252-2900, Case 09-10138, and let them know your opinion.
    If you want to have a say, here is
    your chance. Kevin Carey is the Chief Judge.
    The hearing is MARCH 5. So contact him today!
    You can email him at:
    Chambers_of_Judge_Kevin_Carey@deb.uscourts.gov
    Feel free to suggest they use the $45 Million to pay SEVERANCE to employees who earned it!

    anybody

    March 5, 2009 at 3:26 am

  31. FYI: TO EMAIL the banrupcty judge, overseeing the KERP and KEIP incentives. Chambers_of_Judge_Kevin_Carey@deb.uscourts.gov

    Or Call Delaware Attorney Generals office. @ 302-573-6538

    Call the US BANKRUPTCY COURT in DELAWARE,302-252-2900, Case 09-10138, and let them know your opinion, If you want to have a say, here is your chance. Kevin Carey is the Chief Judge.

    Call or Email your Congressman, N.C David Price

    Fax your comments AND INFORMATION to Obama at the WHITE HOUSE @ 202-456-2461 ATTENTION PRESIDENT OBAMA

    sadN

    March 5, 2009 at 10:48 pm

  32. Perhaps a little too late..it was approved yesterday in the US Bankruptcy court…at least the part of KEIP/KERP for non SLT. I would expect the judge will also approved the 22million for the SLT/ELT.

    The judge has the power to do it and he sided with the crooks…what can you say ?

    TooBad

    March 6, 2009 at 7:04 am

  33. Hi Desk Jockey,
    Someone made a comment on the whack-a-mole of these JCI 5 and above…

    “If i can play OSM whack-a-mole (looking for JCI5s and above hiding in OSM with no direct reports, or teams of 2…”

    Would you have any statistics…on something like this? This could be one of the reasons of being top heavy.

    DesiGurl- I believeD

    March 7, 2009 at 3:24 pm

  34. To We Gotta Move Forward

    We don’t need this blog to make us lower level types you don’t want upset, bitter and angry. WE ALREADY ARE.

    I don’t fault the Desk Jockey one damned bit.

    To be blunt, the only thing that will make me happy to go to work is seeing Mike Z and his gang of incompetent GE MFers get frog marched out the door as the rest of us wave bye bye. Can you with all your Nortel Managerial “Skill” and “Whizdumb” do that?

    Nortel Tool

    March 8, 2009 at 2:16 pm

  35. ALL I CAN SAY IS ..WOW! I WORKED FOR THE OUTFIT WHEN IT WAS “NTI” IN THE 80’S. EVEN THEN YOU COULD TELL THE POWERS THAT BE DIDNT GIVE A SHIT ABOUT THIER PEOPLE. BTW: WHAT IS THE NAME OF THAT GERMAN MOVIE?
    SOMEBODY TELL ME: JMONDAK@MSN.COM

    GOOD LUCK TO ALL OF YOU, AND THE FOLKS AT RTP…

    JW MONDAK III

    March 16, 2009 at 2:02 pm

  36. My suggestion for moving forward is labor organization.

    Probably what higher ups fear more than anything is if the useless, unnecessary for restructuring Peons actually organize themselves and make some simple demands or we simply stop working.

    Heck most of us are still working unpaid overtime, keeping Z and cronies in their millions while they plan to throw us to the wolves. What do we really have to lose in a strike action. Or a high tech “flu” if we can’t get official recognition.

    Still Nortels Peon

    March 18, 2009 at 7:36 am

  37. […] 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 […]


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