Nortel seeking bonuses for top execs

Lawyers for Nortel Networks Corp. are to appear in court on Friday to ask that eight senior executives be allowed to receive bonuses under a program that the company says is needed to boost falling morale at the company.

The company wants the executives to be allowed to receive a share of $23 million US that has already been approved for a group of 84 employees.

A Nortel spokesman said the company will take the list of top executives to court for approval, but it will not include chief executive Mike Zafirovski.

Earlier this month, courts in Canada and the U.S. gave the green light to $22 million in payments to about 900 key engineers and other professionals at the telecommunications equipment giant, about five per cent of its workforce.

Nortel said the bonus payouts are intended to help it retain staff members who are receiving other job offers from outside and also to boost weakening morale at the company.

The bonus plan for executives would reward them for achieving cost reduction goals and tightening the organization's focus, based on their annual base salaries, Nortel said.

Creditors and lawyers object

Nortel has been pushing for the bonus plan at the same time that U.S. insurer AIG is facing public scrutiny over its bonus payments to employees while receiving government bailout money.

Duncan Stewart, director of research and analysis at the consulting firm DSam Consulting, said the timing for Nortel's bonus requests "couldn't be much worse."

"It's suddenly becoming far more difficult to get this sort of thing through the court of public opinion, if not necessarily through the courts themselves."

Nortel's creditors had objected to the inclusion of higher-paid executives, and urged the company to provide an earnings outlook for 2009.

Other lawyers involved in the case have either echoed the creditors' viewpoint or asked for reassurance that the incentive payments will reward employees, not simply encourage them to stick around during such uncertain times.

"Our clients take no objection so long as there is no incentive plan that rewards employees for simply staying with the company or that gives them an incentive to reduce benefits for former employees and retirees," said Mark Zigler, a lawyer at Toronto law firm of Koskie Minsky, which represents former employees of Nortel.

Nortel spokesman Mohammed Nakhooda declined to comment specifically on the proceedings, but noted that the company has established a "goal-based" cash bonus program that it believes is in the best interests of its key stakeholders.

"This is in line with how other companies manage through a restructuring," he said in an email response.

Restructuring under court protection

Nakhooda noted that the company had publicly said it was always planning to resubmit the proposal for executive pay.

Nortel, which has been restructuring under court protection since January, is seeking to sell non-core businesses during the bankruptcy protection process and is expected to outline its restructuring plan publicly in April or May.

The company is required to seek the most value for creditors as part of the proceedings, which include holders of $4.5 billion in debt, former staff members owed severance pay and retired managers who were paid through a company pension plan that used operating funds.

About 95 per cent of the company's employees fall under separate incentive programs that award quarterly bonuses, though the funding of that plan has not been made public.