Nortel - Incentives, Severance, Corporate Jets - My Brain Hurts

This post started as a simple - "here's an article about incentives - ain't that great" - but has morphed into a morality play in my mind.  Here's the scenario...

• Nortel has filed for bankruptcy protection.
• Nortel is laying off workers to reduce costs.
• Nortel is asking the courts to allow the company to keep the employee reward and recognition program in place.
• Severance packages for laid off employees won't be paid until after all other creditors are satisfied - (meaning most probably never.)

What Would You Do?

What is the right approach here?  The company is obviously in dire straights.  In order to survive it must protect its base business and keep quality employees.  The reward and recognition program should help with that.  However, those that were laid off won't get severance.  Who should get the money?

Oh, and let me throw in a little problem with the CEO's use of the company plan to go to his home town almost weekly.  Yeah, that's right, private jets in the news again!   From the article on Report on Business:

"Flight records show the jet made 204 trips in the past year, suggesting that one in five flights ferried Mr. Zafirovski or members of his family to the Chicago-area home, at an estimated cost of $5,000 or more for each one-way ride."

Oh... and it cost Nortel about $10 million to settle with Motorola when Mr. Zafirovski came on board at Nortel.

Let's do some math...

The reward program according to the article costs about $450,000 per year.

My calculations on the severance (which I'm sure are low) is roughly 1,300 people at say, $1,500 per week salary times 12 weeks severance (read the article - 30 year veterans get up to 65 weeks as severance) equals...$24,000,000 (roughly.)

As far as the flights go...50 Flights at $5,000 a pop ($10,000 for a round-trip) is $500,000 total.

Add the $10 million for getting the CEO on board.

So...

• Employee program - $450,000
• Severance Liability - $24,000,000
• Stupidity - $10,500,000

Hmmm... what to do, what to do.

What Would Incentive Intelligence Do?

First of the decision has to be made - should we save Nortel? 

If no...

• Shut down all programs (and the jet)
• Say you're sorry to all employees as you nestle into your reserved spot in hell
• Fire the CEO

If yes...

• Keep the programs
• Shut down the personal use on the jet and make someone outside the CEO's influence circle review all usage (I do believe it will save money for the executives flying around to meet and hand-hold customers)
• Fire the CEO

In the end, if we want Nortel to continue to stay in business - keeping the employee base you have is probably the number one priority - even over the CEO. 

I don't think he'll see it that way but based on the limited evidence I've seen, he and Blogo have spent a lot of time together - and have their delusions to keep them company.