It was interesting to read a story in the Financial Post a couple of days ago about how BCE Inc. CEO Michael Sabia could walk away with a severance package of $8.4-million if he loses his job within one year of a change in control (BCE, Canada’s leading telecom carrier, is in play amid speculation it will be the subject of a LBO). Now, this may seem like a lot of money (well, for most of us, it is!) but it’s relative when you consider the CEO of Canada’s other big telcom company, Nortel CEO Mike Zafirovski, made $8.27-million last year in total compensation. Sabia’s annual salary is $1.25- million, which seems fairly reasonable for someone heading up a $20-billion company.
Is it fair to compare Zafirovski’s total 2006 pay to Sabia’s annual salary?
Per Nortel’s DEF 14 filing, Zafirovski has an annual salary of about $1.2M, US, and may be a bit overpayed on that basis compared to Sabia’s CN$1.25M.
Sabia also received about CN$5M in bonuses in 2006, but some of it may have been converted to deferred stock. Again, less than Zafirovski, but not as big a difference as the comparison of total pay to annual salary implies.
Either way, $8.27M in total compensation for a CEO who really has produced no results for shareholders in a little over a year is egregious and excessive.
The better comparison for Zafirovski is against Cisco CEO John Chambers. As I recall he took no salary and deferred stock compensation back in 2002 when Cisco was going thru layoffs during the telecom downturn even when Cisco was still doing okay financially.
In my view Nortel’s senior management always seems to get rewarded regardless of how the company is doing. I think this says a lot about the leadership of the company and new board of directors at Nortel. I think it was a poor decision by the board to reward Zafirovski and his cabinet so quickly instead of waiting to see he can truly turn the company around in 3-5 years. In my view, it was also a mistake to make a non-Canadian (Harry Pearce) chairman of the board. If we look at where General Motors, which Pearce was in the command of for the last 10 years, is today as a company, we can see that short term results do not necessarily produce a company that is competitive and vibrant in the longer term.
In my view Nortel needs an infusion newer leadership with innovative technology backgrounds as opposed to the operational leaders they have in place now. Cisco is the competitive benchmark but I believe Cisco is being outdone by the likes of Google from a technology leadership standpoint.
It is unfortunate that Nortel has become a laggard in the technology industry primarily because of its poor senior management the last 7 years. As the saying goes, the more things change the more they stay the same.
This is peanuts relative to the 37 million whopping bucks the media claimed was total compensation for his very first year.
Remember, Nortel paid a premium for his axe-cutting track record that is incidentally contradicted now risking profits /megalomania to maintain support on size.
Anyways, remember, they paid Motorola for his defrauding them on several written occasions, and that total payout during the first year was $37 million whopping dollars, relative to the $8B in 2006.
Everyone and his brother knows Nortel’s ongoing pay practices are hysterical.
They cut and cut and cut and and still lose money while they reward financial innovation. Just read the proxy above, you’ll bust a stitch laughing. Remember how they insisted they keep bonuses for fruad year, worse every time counted, at a kangaroo AGM a few years ago? C’mon, what’s changed by these chronic over-staters, the benefit of the doubt has grown thin.
Green CEO now seems to have picked up the Nortellese lingo and hype, defrauding past employer who passed him by, downplaying revisions that double, giving ultimatum of settle or fold, while risk careers, as his one of his first hand picked men made headline for criminally assaulting a young girl out of road rage, the hysterics never cease, it is endless.
Why should unreliable numbers, printing billions in B3 rated paper, or management pay practices executed legally under safe harbor come of any surprise? Enron should have been so lucky let alone to put other new puppets in place as ethics officer walked, same theatrics as board members sit on voting audit committee and 5th CFO accountable for numbers and auditors walk while they still revise/move numbers for 2006, etc… it endless =) Like when is enough, enough already is astounding.
Arm Chair QB
I absolutely agree that Mike Z’s pay to performance ratio is definitely misaligned. Isn’t that the price of admission for a high profile, big ego, celebrity, multinational corporate executive type though?
If Nortel’s board insisted on paying him a no name, show me the money first CEO rate, he would probably not have signed his contract.
Imagine if Nortel’s board had signed up a “no name” CEO at “no name” rates. The financial market analysts would have had a field day since they’re such a nervous bunch.
I don’t think you can have it both ways. Good track record = Big egos = Big compensation package.
I’ve waited seven years already for Nortel to return from the brink. If Mikey Z meets his targets this year (40% Gross Margins, single digit year over year growth and overall profitability). I’ll give him another year to really show me that Nortel is back in the game before I ask for his head.
Last Hurrah
If your saying Zafirovski has a good track record I disagree. Clearly the situation he created at Motorola was not sustainable and is now being realized by his successors. A good track record in my mind is one of sustainability with steady, consistent growth across all products and not a one trick pony he created at Motorola with the Razr. The reason I think the price has gone up for hiring a CEO is because of Sarbanes Oxley and the inherent risks in the job that weren’t there before. Truly great companies aren’t built by the Zafirovskis of the world (operational specialist). They are more likely to come from the likes of the Sergey Brins, Larry Pages or Steve Jobs’ of the world (technology visionaries). The boards of directors should be asking questions around innovative sustainability and technology leadership for the next generation. In Nortel’s case, Canada as a country should be asking this question about the credibility of the leadership of Nortel at this year’s AGM. It appears to me Zafirovski isn’t the longer term answer.
Cool Living
I guess these are the type of posts that Mark E. doesn’t want on his blog as they may border on executive bashing.
At the very least, Mark’s policy drives home the fact that Nortel mgmnt. reads this blog and isn’t happy about criticism from stock watchers about company performance, policy analysis and strategy.
One thing is certain, if mgmt had been doing something right since Frank Dunn left, it would reflect on the stock price by now.
Nobody has commented on this item for a while, so I will re-visit it here. The rank and file in this company that do not enjoy the privileges afforded to upper and middle mgmt. beginning with above-market salaries are as much a victim as shareholders for these employees will continue to be axed in order for the company to keep paying its bills. There’s only so much that B3 bonds, debt refinancings and share issuances can do.
Limping-a-Long
Why should we continue paying top dollar for top talent when results are not being realized?
In the true spirit of Pay for Performance, I propose that Mike Z’s compensation should be directly proportional to the actual daily return realized by the retail investor.
May I suggest the company should pro-rate Mike Z’s total yearly salary and compensation to equal the number of trading days in a year, and then pay him daily in retail Nortel stock. If the stock goes up, he does well. If it tanks, he’ll feel the same pain as the rest of us.
many
I completely agree with all of these comments so far. I find none of them untrue, libelous or offensive. I don’t think anyone can refute them with a straight face.
Jimbo
I think that a CEO should earn what ever they can… However I also think that minimum wage should also be tied to what the CEO makes.
How Much Do You Pay a CEO?
It was interesting to read a story in the Financial Post a couple of days ago about how BCE Inc. CEO Michael Sabia could walk away with a severance package of $8.4-million if he loses his job within one year of a change in control (BCE, Canada’s leading telecom carrier, is in play amid speculation it will be the subject of a LBO). Now, this may seem like a lot of money (well, for most of us, it is!) but it’s relative when you consider the CEO of Canada’s other big telcom company, Nortel CEO Mike Zafirovski, made $8.27-million last year in total compensation. Sabia’s annual salary is $1.25- million, which seems fairly reasonable for someone heading up a $20-billion company.