Posted on: Tuesday, December 17, 2002
CEO to earn $22 million for WorldCom rescue
By Larry Neumeister
Associated Press
NEW YORK — Federal judges approved a trimmed compensation plan for WorldCom Inc.'s incoming CEO yesterday, saying the company appears to be on the right path after plunging into the largest bankruptcy in U.S. corporate history.
U.S. District Judge Jed Rakoff and U.S. Bankruptcy Judge Arthur Gonzalez sat next to each other in a Manhattan courtroom as they approved a plan for new chief executive officer Michael Capellas to get $20 million in cash and equities, plus a $2 million signing bonus, during the three-year contract.
Rakoff said it will be Capellas' challenge to take the scandal-plagued telecommunications company, "a huge company tainted by a disreputable past, and transform it into the model of what a good company should be."
WorldCom filed for bankruptcy in July and expects its accounting misstatements to top $9 billion. The company, whose MCI unit is the No. 2 U.S. long-distance company with 20 million customers, rattled the stock market when it was accused of fraud for misleading investors by misstating and hiding expenses.
Rakoff will decide a fine of up to $9 billion for WorldCom in the spring after the company and federal prosecutors settled a civil lawsuit over the fraud.
Rakoff praised Capellas and a court-appointed monitor, Richard Breeden, for working out a compensation package that was 23 percent below the pay Capellas would have received under a plan Rakoff criticized a week earlier.
Capellas, 48, nodded his approval as Breeden said the new chief executive must set standards higher than those of most top corporate officers to receive higher pay at WorldCom, based in Clinton, Miss.
"There are no gimmes in this case," Breeden told the judges. "The high jump bar has not been put 6 inches off the ground."
Breeden said the revised contract includes $8 million in cash for Capellas over three years and another $12 million in stock after the company emerges from bankruptcy.
Capellas could earn an additional $6 million in stock grants if the monitor or board of directors concludes his work is exemplary or significantly exceeds expectations.
The language and the amounts prompted Rakoff to dust off his own sports analogy: "I've never had a case involving a baseball free agent but now I know what it feels like."
Breeden called the package "fair and eminently reasonable."
He said the company had difficulty attracting candidates and suggested it was fortunate to find someone with the experience of Capellas, who served as president of Hewlett-Packard Co. after its $19 billion acquisition of Compaq Computer Corp. He was Compaq's boss for nearly three years.
Breeden said he concluded during his work that many companies pay executives far too much.
Some people will criticize any pay plan for Capellas that includes seven figures, Breeden said. But he noted that Capellas will make considerably less than he could have gotten elsewhere and that his role will be to save tens of thousands of jobs and service for tens of millions of customers.
Breeden said he had to "balance the opportunity to save on the short term some compensation dollars at the risk of possible loss of billions of dollars of the value of the company."
Rakoff agreed that the reduced compensation package is, like many executive salaries, "quite startling in its magnitude" — but said it is reasonable for an unprecedented challenge.
