Bankruptcy bonuses

It has come to my attention that Nortel, the telecoms giant that filed for bankruptcy in January after losing $7B since 2005 and having former execs charged with fraud by both Canada and the US, have just paid out $23M in bonuses to 92 employees.

More than $7M of that is going to eight “key executives”. And there’s another $22M headed out to “other employees”.

At the same time they’re shelling out these millions, thousands of laid-off or retired Nortel employees have been refused any sort of severance packages or had their pensions stopped.

This isn’t a terrible surprise in the US, where companies aren’t required to make any provision under any circumstances for the employee-victims of their corporate stupidity. But in both Canada and Britain, there are labor laws that are meant to protect workers who’ve been laid off. I don’t know what it is in Canada, but in the UK they by law must pay out one month for every year you’ve worked for that company.

Nortel are able to stiff their staff because under bankruptcy law severance and pension payments are considered “unsecured claims.” There have been attempts in both Canada and the UK to stop the bonuses, but so far without success.

Now, these aren’t your common or garden variety bonuses, no, no. They’re the infamous “retention bonuses”. Naturally, when I heard this I had a couple of questions:

1) Why would you think the very idiots who got you into this mess have any hope of getting you out of it? And therefore, why would you want to retain them instead of firing their asses?

2) Why would you be so worried about these morons leaving that you feel you have to pay baksheesh to keep them? Where, exactly, are they going to go in this economy? Cisco? If Cisco's smart enough to not be tanking these days, why would they hire people who obviously are not good managers or executives? Alcatel-Lucent? Their stock as of this week is hovering around $2.37. (When I worked for pre-Lucent Alcatel in 2001, stock was in double digits to the left of the decimal point.) Plus they have their own problems with cooking the books; they don’t need to import outside talent to help with that.

Who else is left? They're certainly not going to start-ups, not after working in a behemoth like Nortel for a number of years. The culture, security and rewards are too different. And start-ups sure as hell won't want people who aren't willing to actually, you know, work for their compensation. Which mostly comes in the form of equity.

So, basically Nortel is (like so many other companies with their corporate heads up their butts) paying money for old rope. And we can expect there to be no change in the company’s outcome, business-wise.

And the workers, as always, continue to get the fuzzy end of the lollipop stick.