WorldCom CEO’s Pay Package Raises Concerns, Judge Says

WorldCom Inc.’s proposed $3.5-million pay package for new Chief Executive Michael Capellas “raises serious concerns” about how willing management is to reform the telephone provider, a U.S. judge said Tuesday.

U.S. District Judge Jed Rakoff, who last month endorsed WorldCom’s settlement with the Securities and Exchange Commission, ordered the company’s representatives to meet with Richard Breeden, his appointed monitor, to discuss the compensation.

To present “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,” said Rakoff, who retained the power to impose fines against WorldCom as part of the SEC settlement.

WorldCom filed its U.S. bankruptcy petition in July after accounting misstatements of more than $9 billion under the helm of former CEO Bernard J. Ebbers. Ebbers, who received more than $77 million in cash and benefits before quitting in April, also borrowed $408.2 million from the company. Other executives have been charged with fraud.

Rakoff reminded executives Tuesday that the company remains “fully liable” for the entire fraud.

Under the terms of the company’s settlement with the SEC, Rakoff will determine next year how much to fine WorldCom. The size of the penalty would be based on how much progress the Clinton, Miss.-based company has made in cleaning up its books and fixing its corporate governance.