WorldCom Inc.’s new CEO, Michael Capellas, received judicial approval of his scaled-down $20 million pay package as a federal judge told him part of his role would be to transform the scandal-ridden telecommunications giant into a model corporate citizen.
U.S. District Judge Jed Rakoff and U.S. Bankruptcy Judge Arthur Gonzalez approved the revised compensation plan on Monday, saying the company appeared headed on the right path after plunging into the largest bankruptcy in U.S. corporate history.
The federal judges sat side by side in a Manhattan courtroom as they gave the OK to a plan for Capellas to receive $20 million in cash and equities during the three-year contract.
Rakoff said WorldCom was “tainted by a disreputable past” and it will be Capellas’ mission to transform it into “the model of what a good company should be.”
WorldCom filed for bankruptcy in July and expects its accounting misstatements to top $9 billion. The company, whose MCI unit is the No. 2 U.S. long-distance company with 20 million customers, rattled the stock market when it was accused of fraud for misleading investors by misstating and hiding expenses.
Rakoff said he will watch WorldCom closely before deciding on a fine up to $9 billion after the company and the government settled a civil lawsuit over the fraud.
He praised Capellas and a court-appointed monitor, Richard Breeden, for working out a compensation package that was 23 percent below the pay Capellas would have received under a plan Rakoff criticized a week earlier.
Capellas, 48, nodded his approval as Breeden said the new chief executive must set standards higher than most top corporate officers to end “today’s legacy of shattered trust” and receive higher pay at the Clinton, Miss.-based WorldCom.
Capellas will get $8 million in cash and $12 million in restricted stock, although he will be eligible for stock only after WorldCom emerges from bankruptcy.
He also will receive a $2 million signing bonus and could earn an additional $6 million in stock grants if the monitor or board of directors concludes his work is exemplary or significantly exceeds expectations.
Breeden called the package “fair and eminently reasonable.”
He said the company had difficulty attracting candidates and suggested it was fortunate to find someone with the experience of Capellas, who served as president of Hewlett-Packard Co. after its $19 billion acquisition of Compaq Computer Corp.
Breeden said that Capellas will make less at WorldCom than he could have earned elsewhere and that he must save tens of thousands of jobs and satisfy tens of millions of customers.
Rakoff agreed that the reduced compensation package contained numbers that were like many executive salaries “quite startling in its magnitude” but said it was reasonable for a management challenge that was unprecedented.
Four WorldCom executives have pleaded guilty to their roles in the accounting misstatements that plunged the telecommunications giant into bankruptcy. Former chief financial officer Scott Sullivan has been indicted. He has maintained his innocence.