Big Payday for CEO as Firm Sinks
Even as his company was sliding into financial ruin, Global Crossing Ltd. Chief Executive John Legere collected as much as $3 million in severance pay after being promoted from the telecommunication company’s biggest subsidiary. The payout is highly unusual and likely to fuel more controversy over the compensation that Global Crossing granted executives in the months before its downfall.
Legere’s severance package, outlined in regulatory filings, came on top of a $3.5-million signing bonus he received for joining Global Crossing four months before it filed the fifth-largest bankruptcy in U.S. history.
The 43-year-old Legere also had his salary doubled, to $1.1 million, and the $10-million balance of a $15-million loan from the subsidiary, Asia Global Crossing, erased.
Compensation expert Graef Crystal said he has never heard of a subsidiary paying severance to a CEO who left to work for the parent company.
“For all practical purposes, this is the same company,” Crystal said. “It’s just a promotion . . . so he got promoted and gets severance.”
The arrangement is even more unusual considering the nature of Legere’s move. In leaving Asia Global Crossing, Legere relocated his office less than 200 yards across a Beverly Hills courtyard complex shared by both Global Crossing and Asia Global Crossing.
Legere’s employment agreement with Asia Global Crossing gave him $1 million in severance for each year remaining on the contract. Under a recent contract extension, Legere could receive up to $3 million, according to regulatory filings.
Madelyn Smith, a spokeswoman for Asia Global Crossing, would not disclose the exact amount of severance paid to Legere, saying only that he “was paid severance in accordance with his contract.” Through a Global Crossing spokeswoman, Legere declined to comment.
In 2000, Global Crossing spun off Asia Global Crossing, which runs the company’s fiber-optic network in the Far East, and retained a 59% ownership stake. The two companies have overlapping boards of directors, and at one point last year Legere was chief executive of both companies.
In a letter to employees last week, he defended his pay package.
Legere wrote that the loan was meant to compensate him for giving up lucrative stock and options in Dell Computer Corp., where he was a high-ranking executive before he joined Asia Global Crossing. The $15-million loan was never designed to be repaid, he said, and was set up as a loan solely for tax reasons.
His salary and signing bonus were considered reasonable by the company’s board of directors, who consulted with compensation experts before voting to approve the package, he said.
The job of turning around Global Crossing will be a tough one, given the company’s heavy debt load and the weak economy, he said.
“It takes a unique set of skills, experience and leadership ability to tackle this job in the midst of what might metaphorically be called ‘A Perfect Storm,’ ” Legere wrote. “As for the salary and bonus--the employees, the industry and public at large will have a chance to weigh in on whether I’m earning my keep.”
The nearly $15 million in compensation given to Legere in the months leading up to the bankruptcy filing did not materially contribute to the company’s financial downfall. Global Crossing listed $12.3 billion in debts, and $22.4 billion in assets in the filing.
But news of Legere’s severance package further outraged the employees Global Crossing laid off before the Jan. 28 Chapter 11 filing, which cut off all severance payments to former employees, many of whom have yet to find new jobs.
Others have been stuck with unreimbursed travel expenses, reduced health benefits and retirement funds of little or no value now that Global Crossing shares have been reduced to 7 cents, from a high of $65.77 in 1999.
“This makes me very upset. I’m having to worry about my heating bills and mortgage and everything,” said former Global Crossing employee Matt Fico. “You just wonder sometimes where a company’s priorities lie.”
Global Crossing has been a target of compensation experts critical of excessive executive pay. Former CEO Robert Annunziata, who was employed for 13 months, got a $10-million cash bonus, a guaranteed annual bonus of $500,000 and a $5-million loan to buy company stock when he joined the company in 1999. His package included options to buy 2 million shares of Global Crossing stock at $10 below market prices.
In addition, his contract provided for a brand-new 1999 Mercedes and monthly first-class trips to shuttle his family, including his mother, back and forth from his Los Angeles and New Jersey homes.
The company also has come under fire because executives reaped large gains from the sale of stock. Top officers sold a total of $1.3 billion in Global Crossing stock in the three years before the company’s bankruptcy filing.
About half of that total was sold by Gary Winnick, the company’s founder and largest stockholder.
Executive compensation has taken on new importance in the wake of the company’s bankruptcy and the growing similarities between Global Crossing and energy trading firm Enron Corp.
The Houston-based energy firm’s collapse revealed a quagmire of misleading accounting and self-dealing within the firm, sparking investigations by several agencies and Congress and renewed interest in the accounting minutiae involving Global Crossing and others.
One day after the filing, a letter by a former Global Crossing employee surfaced, questioning the company’s aggressive accounting methods.
The letter, written in August by former finance Vice President Roy Olofson, outlined bookkeeping methods he viewed as misleading.
Despite strenuous denials from Global Crossing, Olofson’s allegations are now the subject of investigations by the Securities and Exchange Commission and the FBI.
