Posted on 02/20/2004 9:33:17 AM PST by blowfish
AT&T Wireless calls it a performance bonus. Employees call it the shaft.
Despite a stock valuation that's still a fraction of its high nearly four years ago and a service record so poor that the Redmond cellular company recently lost more subscribers than any other cellular provider, executives at AT&T Wireless Services Inc. were given shares worth millions of dollars as performance bonuses last month. That award came a week before they moved to sell the company for a price that renders nearly all the employees' options worthless.
The bonuses were paid under a stock-based performance-incentive plan approved by the board of directors more than a year ago, so analysts said they don't constitute before-the-sale manipulation. But their amount and timing is interesting considering that the move to sell the company automatically will vest employee stock options -- at a price to exercise that's more than their current value, which renders them worthless.
What's more, Cingular officials said they will not provide compensatory options to most AT&T Wireless employees who survive the job cuts already under way and are taken into the new company. At Cingular, most employees aren't eligible for options.
Employees expressed anger when they learned of the lucrative stock arrangements for top executives and suggested that personal greed had been driving the company.
"This puts a whole bunch of stuff in perspective," said one employee, who asked that her name not be used.
According to federal filings, on Jan. 29, one week after AT&T Wireless put itself on the auction block, its board of directors gave each of 12 company officers shares worth a total of nearly $13.5 million.
The grants ranged from 43,695 shares -- given to each of four executives and worth more than $655,000 at the $15 price offered by buyer Cingular Wireless LLC of Atlanta on Tuesday -- to 187,266 shares given to Chief Executive John Zeglis and worth $2.8 million.
The stock was a performance bonus for results achieved during 2003, based on criteria set out by the board the year before, spokesman Jeremy Pemble said. He declined to disclose those criteria.
An observer could be forgiven for wondering what they might be, analysts said.
"Probably the hurdle was not very high," said Roger Entner, an analyst with the Yankee Group. "It's difficult to see how their stewardship of the company really warrants those lavish bonuses. Should they give them back? That would be up to the individuals involved."
Some AT&T Wireless employees, many of whom have said they're disappointed by how the company has declined, said they'd favor such a giveback. Because the company's stock has steadily fallen since it was spun off from AT&T Corp. in 2000, the stock options many employees have gotten as performance bonuses are worthless.
"They get shares worth $15 each, and I sit with hundreds of options that are underwater," said the employee who asked that her name not be used. "That doesn't really seem fair."
Though AT&T Wireless did show some improvement in 2003, overall performance was poor.
Shares gained $2.34, or 41 percent, climbing to $7.99 from $5.65. During the year, shares hit a high of $9.10, on Sept. 8. Those prices are a long fall from $35.25, the all-time high reached shortly after April 2000, when AT&T Wireless made a $10.62 billion debut as a tracking stock.
Revenue last year declined by 7 percent, or $1 million, compared with revenue in 2002. Average revenue per user, another key metric, declined by 1 percent, or 40 cents. The company did post net income of 16 cents per share, compared with a loss of 87 cents per share during the prior year.
Subscriber numbers grew by 5 percent, but analysts worried that increase was achieved through giveaways and rate cuts that lower profit margins. To improve the chances of future profitability, in 2003 the company cut 13 percent of its staff, at a cost of more than $150 million.
The year's fourth quarter was especially bad. Though net losses narrowed and revenue was up, operating expenses rose twice as fast as in the same period a year ago. The company stumbled when trying to install some new software, for weeks hampering thousands of customers who wanted to sign onto its already slow-growing digital data service. And AT&T Wireless racked up more complaints than any other cellular carrier over customers thwarted when trying to switch carriers but keep the same phone number.
More customers left AT&T Wireless than any other carrier, according to figures published in November.
When it first spun off, AT&T Wireless' shares were fought over. Now, many analysts are asking why Cingular bothered to buy it. At least 14 analysts downgraded their ratings on the company during the quarter, according to The Wall Street Journal.
It's the plunge in the company's share price that has rendered many AT&T Wireless employees' stock options worthless. Of the 215.2 million options outstanding as of Dec. 31, 2002 -- the latest figures available -- 165 million, or 77 percent, cost $16.43 or more. That means they are valueless, because option holders would have to pay more to buy each share than the $15 that Cingular has offered.
Of those 215.2 million options, 128.6 million of them, or 60 percent, were held by employees. AT&T Wireless's options haven't been repriced, and there are no plans to do so, said spokesman Jeremy Pemble. Cingular offers options of its two parent companies, SBC Communications and BellSouth, only to executives at the director level or above, said spokesman Clay Owen.
Performance bonuses earned by AT&T Wireless executives for less-than-stellar results, contrasted with worthless options for many of the rank-and-file there, made cynics of some employees.
"Why is top management selling the company?" asked an AT&T Wireless manager who has worked at the company for more than a decade.
"We had some bad press and some bad numbers in the fourth quarter. But that really wasn't the reason. A lot of people just think it is greed."
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