Once again AT&T shows its real colors, while it continues to lay off represented occupational employees, it protects the chosen ones should anything happen to the Company. No wonder they can't make money.
In Unity,
Ralph V. Maly, Jr.
Vice President

>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>
Tuesday, April 22, 2003
BY JEFF MAY
Star-Ledger Staff

AT&T Corp. has quietly increased the amount of severance pay its top executives would receive if the company is bought out by a competitor.

Senior officers will now get three years of salary and bonuses instead of two if they lose their jobs in a merger or acquisition, according to a filing the company made last week with the Securities and Exchange Commission. The change also increases awards of restricted stock by 50 percent and broadens the pool of executives who are eligible for the sweetened package.

Executive severance packages, sometimes called "golden parachutes," can be triggered when there is a change of control within a company, usually through a buyout or merger.

"It either means AT&T is expecting one, and they want to make sure everyone gets more money," said Paul Hodgson, a compensation expert for The Corporate Library, a governance research group, "or they just want to up it to market levels."

The telecommunications industry continues to suffer from a severe downturn, and further consolidation is expected among some of the larger players. AT&T has had conversations with BellSouth Corp. about a possible combination during the past two years, and some analysts say those talks could heat up if AT&T fails to make more headway against wounded rivals such as WorldCom or Global Crossing.

An AT&T spokesman said the severance change was part of a periodic review of compensation plans. It was originally approved by the board in 2000, but it was not put in force until Jan. 1 this year, according to the filing.

The plan covered 10 senior executives when it was created in 1997, but AT&T's board expanded the list by "a handful" at the end of last month, said the spokesman, Dan Lawler. He declined to give an exact number.

The change brings AT&T in line with the majority of other large companies. Almost 56 percent of the S&P 500 offer three years of pay and benefits to executives who leave before their contracts are up, according to a study Hodgson did earlier this year.

Twelve percent of the companies offer a year or less, the study found.

The rationale for offering such generous exit packages is that executives would no longer worry about their own financial self-interest in the consideration of a merger or buyout, Hodgson said. But the size of the payouts can create its own incentive to strike a deal that might not be in the best interest of shareholders, he said.

"That's a lot of money for no work," he said.

In AT&T's case, the potential bonus for senior officers is typically 125 percent of salary. So an executive can now walk away with almost seven times his or her annual salary if AT&T is bought out. Other existing perks, including free financial consulting, outplacement services and subsidized preparation of personal tax returns, are not increased by an extra year, AT&T said.

And, as was the case under AT&T's previous severance plan, departing senior officers would see their stock options vest immediately. Restrictions also would lift on any previous stock awards.

The federal government imposes an excise tax on severance packages that go beyond three times an officer's annual compensation. The Internal Revenue Service levied the tax to curb overly generous payouts, but many companies with more modest severance plans simply increased them to the new ceiling, Hodgson said.

"You would hope the way forward is to reduce them, not to increase them," he said. "But that isn't the way boards seem to think."

Jeff May can be reached at jmay@starledger.com or (973) 392-4282.

Copyright 2003 NJ.com. All Rights Reserved.