A federal judge on Tuesday criticized WorldCom Inc.’s proposed compensation plan for incoming CEO Michael Capellas, warning that he could still hand down a multibillion dollar fine if the company doesn’t show it is truly “committed to reform.”
Manhattan federal court Judge Jed Rakoff issued a four-page memorandum order calling on representatives of the company to come to his court on Dec. 16 to discuss the compensation package.
A WorldCom filing in bankruptcy court said Capellas would be paid a signing bonus of $2 million, an annual salary of $1.5 million and a $1.5 million bonus guaranteed in 2003.
He is due to get $18 million in WorldCom stock if, as expected, the company exits Chapter 11, plus additional stock in future years.
WorldCom’s filing called the package “eminently reasonable” and “well below” what two other candidates WorldCom considered for the CEO job would have required.
Rakoff questioned WorldCom’s assertion in the filing that the court-appointed monitor, Richard Breeden, was likely to approve Capellas’ compensation terms.
“This statement seems most puzzling, given that several material terms of the proposed compensation package have previously been rejected by the corporate monitor,” the judge wrote.
“A compensation package so potentially problematic raises serious concerns as to whether proposed new management is as committed to reform as the nature of this case requires,” Rakoff said.
The papers do not say what specific elements of the compensation rankle the monitor.
A spokeswoman for WorldCom did not immediately comment on the judge’s memorandum.
The telecommunications giant, based in Jackson, Miss., is trying to rebuild itself after former executives engineered a massive $9 billion accounting fraud, the largest in corporate U.S. history.
Rakoff approved a partial settlement of the Securities and Exchange Commission’s case against WorldCom last month on the condition that a fine would be determined later and Capellas’ compensation would be reviewed by the monitor and judge.
Rakoff’s filing also contains a clear reminder to the company that the judge’s fine, expected to be imposed in the spring, could potentially climb as high as $9 billion.
“WorldCom remains fully liable for such fine â€” potentially commensurate with the full size of the fraud â€” as the court may deem appropriate,” Rakoff wrote.
The judge ordered Breeden and WorldCom officials to have private conversations before the Dec. 16 hearing “to try to resolve what appears to be (the monitor’s) very serious objections to the proposed compensation package.”