Nortel approves more exec raises

Management at Nortel Networks, already under fire for handing out executive bonuses, approved a plan this fall to give another round of raises to its top managers, according to an internal corporate document obtained by CBC News.
Technology giant Nortel has been selling off its units since falling under bankruptcy protection in January. ((Rebecca Zandbergen/CBC))
Management at Nortel Networks Corp., already under fire for handing out executive bonuses, approved a plan this fall to give another round of raises to its top managers, according to an internal corporate document obtained by CBC News.

The raises, in the form of increases in salary, investments or bonuses, are part of the company's plan to retain employees as it restructures after filing for bankruptcy protection in January.

But they come at a time when many laid-off and retired Nortel employees are having to fight the company in court for their severance packages, pensions and disability payments.

The former employees contacted by CBC were outraged at what they say is another example of corporate greed.

"I am shocked," said Melanie Johannink, who worked for Nortel for 18 years before being laid off in the spring. "It kind of makes you wonder where the money is going."

Former Nortel president Bob Ferchat told the CBC he was also surprised at the extent to which executives at a company in bankruptcy protection were rewarding themselves.

"My reaction, frankly, to the document is 'Here we go again'," said Ferchat. "It's another round of people dividing the proceeds, eating the carcass of the company before it's even dead."

14 executives to earn over $500K

The internal document obtained by CBC outlines a new compensation scheme for 72 Nortel executives that will see them get a total of $7.5 million US on top of their current salaries in 2009.

Of those 72 executives, 14 will be getting compensation of $500,000 or more.

The biggest earner under the new compensation plan is former treasurer John Doolittle, who took over as head of the company's corporate group in August after the departure of chief executive Mike Zafirovski. Doolittle's total compensation has been bumped to $1.68 million this year, an increase of 1.12 million over 2008, when he earned $390,000 US in salary and an estimated $170,000 US in investment and bonus money.

Nortel confirmed a new compensation scheme had been approved but would not confirm the specific information in the document CBC obtained.

Former CEO defended bonuses

Before departing in August, Zafirovski had already riled up retired and laid-off employees when he proposed $45 million in bonuses to key executives. The bonuses were approved by a U.S. bankruptcy court in March, a month after the company announced 3,000 job cuts.

Former Nortel Networks president Mike Zafirovski appeared before a House of Commons finance committee in June. Zafirovski defended the company's decision to pay out bonuses to top executives soon after thousands of jobs were cut. ((Sean Kilpatrick/Canadian Press))
Zafirovski defended the payments, saying they were necessary to retain vital executives who might otherwise flee the flagging company as it tried to maximize the sale of its assets and pay off creditors.

However, he told a House of Commons finance committee looking into Nortel's situation that the company's constrained cash resources and competing creditor claims meant it wasn't possible to pay severance to laid-off employees. He also said the company decided to trim the value paid out for pension benefits to reflect the pension plan's current funding levels.

He said the refusal to pay severance was an "agonizing" decision.

"It has weighed on me greatly," he told the committee.

"The decision not to pay severance was not taken lightly."

Zafirovski further enraged retired Nortel employees when he made a filing in October with a U.S. bankruptcy court naming himself as a creditor and claiming more than $12 million US from the company, about half of which was for pension benefits. That claim is still under review.

Workers seek pension reform

Nortel's pension deficit was estimated to be between $2.5 billion and $2.8 billion when it filed for bankruptcy protection in January.

Don Sproule, chairman of the national committee for members of Nortel's pension plan, has said about 17,500 retired Nortel employees have been affected by the bankruptcy.

Sproule said the issue for retirees is that Nortel's pension plan is about 69 per cent funded, leaving 31 per cent up in the air and in the hands of bankruptcy courts, which consider retirees and workers seeking severance or disability payments a lower priority than other creditors.

Nortel pensioners rally on Parliament Hill in October to highlight the impact of Nortel's financial woes on their severance packages, pensions and disability payments. ((Sean Kilpatrick/Canadian Press))
The pension deficit was discussed on Parliament Hill, and in October, federal Finance Minister Jim Flaherty introduced new rules for public pensions to ensure companies do a better job funding their plans. But the reforms would do nothing to address shortfalls in private pension plans at companies like Nortel. Ottawa has been reluctant to use taxpayer funds to guarantee private pensions.

Earlier in October, the Quebec government vowed to safeguard the pensions of 3,750 Nortel employees in the province for a maximum of five years. National assembly member François Ouimet called the measure a "special situation."

The NDP has proposed changes to the Bankruptcy and Insolvency Act that would designate workers seeking to claim the unfunded portion of their pensions preferred creditors in bankruptcy proceedings. NDP Leader Jack Layton has said the party is working on similar legislation for disability payments.

Disability payments on hold

For 62-year-old Alice Campbell, the loss of funds from her disability pension would be devastating. Campbell says she has been on disability for 15 years since a series of unsuccessful surgeries and pays more than $1,000 a month for medications.

"To lose their support on my pension... the cost of my drugs is unreal," she said. "I don't know what I would do, I really hate thinking about it."

Like Johannink and Ferchat, Campbell was dismayed that executives are being rewarded while rank-and-file workers go without the money they are owed.

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