Sweet KEIP (aka Bonuses for Executives)

While Nortel is working away on its new business strategy and restructuring plans, there’s also a lot of work being done to retain key employees from abandoning ship.

The two vehicles being used by Nortel are the Key Executive Incentive Plan (KEIP) and the Key Employee Retention Plan (KERP). In a court filing to seek approval for both plans, Nortel provided details how they would operate, and how much their implementation could cost.

Let’s focus on KEIP because it involves Nortel’s senior executives, including its “senior leadership team” (aka SLT). Of Nortel’s 25,000 or so employees, 92 have been identified as KEIP candidates based on having a “successful/most effective” rating on their last performance review. This includes eight members of the senior leadership team.

The awards under KEIP are tied to three milestones:

1. The achievement of targets to reduce costs in North America
2. The achievement of a “leaner and more focused” business
3. Confirmation by the Canadian court of the reorganization plan

Reaching the first objectives earns KEIP members 25% of the incentive award; reaching the second objective another 25%; and the third objective 50%.

Now, here’s where things get interesting.

The 92 executives participating in KEIP would be eligible to receive an award equivalent to 20% to 183% of their annual salary depending on their experience and responsibilities. The eight members of the senior leadership team would be eligible for bonuses of 100% to 183%. Nortel estimates total payments under KEIP could be about $23-million.

More: To read the KEIP and KERP plans, it’s docket #389 on the Epiq Systems site.

Addendum: The Ottawa Citizen has a story on the bonus plans – a day after AAN, mind you!

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