Truly special rewards at Global Crossing…

April 13, 2011

The proposed acquisition of Global Crossing (GLBC) by Level 3 Communications (LVLT) is big news in the networking world, and beyond. Among those with plenty of reason to be thrilled with the deal: Global Crossing Chief Executive John J. Legere and his immediate lieutenants.

Top executives typically make out well when it comes to dealmaking, but by happy coincidence, just a little over two months ago, Global Crossing’s board ensured that an acquisition would make Legere wealthier still.

On January 21, the board doled out its annual Long Term Incentive Program awards, in the form of restricted stock units and “target performance shares” that were scheduled to vest in January 2014 — or sooner in certain circumstances, including a change in control of the company. All well and good — a lot of companies hand out similar awards around the same time of year.

This year, however, Global Crossing’s board went beyond its usual annual LTIP grant. Here’s how the company put it in an 8-K filed on January 27:

“Effective the same date, the Board and the Compensation Committee also approved a reward program for certain employees of the Company (the ‘Special Rewards Program’). Each Named Executive Officer received RSUs under the Special Rewards Program.”

And that, other than a table with the share counts, is about all you get about that “Special Rewards Program.” What is it rewarding? Why did the board decide to implement it at that particular point in time? Why did they grant it in late January this year? If you’re relying on this 8-K, your guess is as good as ours. A slim note on the penultimate page of the company’s 10-K offers a smidgen more detail, describing the arrangement as “intended to retain and motivate certain employees.” And that’s it that we can find.

Nor are we talking small potatoes. All told, the regular 2011 long-term incentive program brought Legere 127,800 restricted stock units and 127,800 target performance shares. The Special Rewards Program brought him another 41,481 restricted stock units. The top five executives together raked in 83,356 shares under the special program, or more than 30% of the 271,693 issued to all employees under the arrangement (a figure buried in that 10-K).

The regular and special RSUs all vest “in full upon a Change in Control” — some 169,281 shares. News reports are valuing the 16-to-1 stock deal at about $23.04 a share — making Legere’s regular award roughly $2.9 million, and the special award another $956,000.

The performance shares are harder to value. While they also vest immediately on a change in control, they pay out based on Global Crossing’s total shareholder return relative to two peer groups. Unfortunately, the company doesn’t bother to tell shareholders in this filing what the two peer groups are, so it’s hard to say just how much the performance shares will bring Legere & co. And we can’t find a copy of the 2011 Long-Term Incentive Program or the Special Rewards Program in the company’s filings to try to clarify things. Suffice to say that there’s a potential for another $5.4 million in payouts to the top five executives, of which $2.9 million could go to Legere.

Of course, it’s that Special Reward Program that’s most intriguing here. Time will tell where talks stood between Global Crossing and Level 3 in mid- to late January when the program was adopted by the board — the companies will have to disclose a chronology of events in the merger proxy.

If in fact it proves that the Special Reward came when it was clear a deal was in the works, we have to wonder: Why not just dispense with the complexity and just give the executives a big check on deal day?

Then again, that might look bad.

Image source: Level 3 and Global Crossing joint presentation filed with the SEC

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