How Do You Spell Blood-Sucking-Greed-Machine-Parasite In Canadian? NORTEL, eh.

Posted on March 21, 2009

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Wow. Double wow. Look directly at camera, shrug shoulders, and roll eyes. Triple wow.

This just in from the world of corporate executive greed — Canadian stylz. This time the player is Nortel Networks Corp.

Another retention plan. More executive “bonuses.” For the very same crazy cats that helped “manage” the company to bankruptcy protection. How much do you ask? To the tune of  $7.3-million (U.S.). For eight, yes, eight executives! 

But wait, it gets better. Because Nortel filled for bankruptcy protection in January, as many as 1,100 Canadian workers who were laid off last year have been denied their severance packages. Oh, could it be more sublime? Lay off workers with packages, file for bankruptcy, packages disappear in a puff of bankruptcy protection smoke, then demand / expect / be offered retention bonuses! It’s too much. I bet these guys light cigars with $100 (U.S. — of course) bills too. For Globe coverage, click here. In total, it looks like about $45 million in retention bonuses will go to about a 1000 executive and professional employees.

We’ve been down this road with AIG already. We should shame these guys as much as possible, but this little “bonus” bonanza is judge-approved, so it must be legal and, therefore, public shame should be the extent of our efforts. Sad but true. I suppose some kind of regulatory framework might also be considered. 

Even so, I’ve been thinking about these retention bonuses and the strange incentives they create. The basic idea behind retention bonuses is that some people in a company are so important, so in the know of what is going on in that company, the company must pay them big “shadow-salary” retention bonuses — even when they create a gigantic mess — to lessen the risk of them being poached. Why? Only they really know what the mess is all about and, after they have managed a business into bankruptcy, you can be sure they will be a red hot commodity. Of course, the absurdity of the situation is that if the executives in question are really that clever, the competitor will find the price at which they will jump ship.

What does this mean in terms of incentives? It means this I think: if I am an executive, I’m not going to do my job and make sure that other people in the company understand what I do. In fact, I will make myself indispensable through baroque-like esotericism (hello, “complex financial mechanisms” euphemism). Rather than train and nurture several understudies, I’m not even going to make the script I’m using available to the director. Why? So long as I am the only one who knows what the hell is going on in my little piece of the corporate puzzle, I am irreplaceable and will be able to extract big “retention bonuses.” Moreover, executives and managers who do their job, which necessarily includes making sure operations run smoothly even if he or she drops dead tomorrow, are less likely to get retention bonuses than those who run the show from the “notes” he or she keeps in her head filed under top secret. As a result, they won’t be retained. As a result, the worst executives and mangers will end up being those who are most indispensable. 

If one is looking to sort out how corporate America and corporate Canada have come to suffer from a management crisis, the practice of retention bonuses might be one place to start the search. 

 

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