Judges Could Reject Pay Plan For New Worldcom Boss

Even so, executive compensation and corporate governance experts say they expect Capellas' pay package will be deemed excessive by U.S. District Judge Jed S. Rakoff and U.S. Bankruptcy Judge Arthur Gonzalez when they review the plan Monday.

Capellas, who quit as president of Hewlett-Packard Co. in early November, started work at WorldCom on Dec. 2. But technically he's not on the payroll yet. And the tentative deal he hammered out with WorldCom and its creditors' committee -- worth an average of $12 million a year in salary, bonuses and stock options, and another $18 million of restricted stock upon WorldCom's emergence from bankruptcy -- is threatening to unravel.

Rakoff -- who last month approved a partial settlement of the Securities and Exchange Commission's fraud case against WorldCom over its $9 billion accounting fraud -- said bankruptcy court-appointed monitor Richard Breeden found some of Capellas' pay package "grossly excessive."

So does Jeffrey Sonnenfeld, associate dean at Yale University School of Management and head of its Chief Executive Leadership Institute. Sonnenfeld predicts the judges will decide Capellas, whose HP compensation package was valued at more than $16 million, would nonetheless be overpaid by WorldCom.

"It's excessive given his experience level, and a company in bankruptcy doesn't need to be paying this kind of money," Sonnenfeld said. "I would be surprised if the court didn't recommend that the package be cut back. Rakoff is a very sensible judge."

Capellas, who was chairman and CEO of Compaq Computer Corp. until HP acquired it in May, walked away from HP with $14.5 million in severance and a $1.6 million loan forgiven.

Executive compensation experts say the biggest concessions Capellas made to take the WorldCom job were forgoing retirement benefits, dropping a demand for initial stock option grants of at least $8 million after WorldCom's reorganization and agreeing that a non-executive chairman could replace him without having cause to quit.

WorldCom bondholder David Matlin has reportedly pressed to have former New York mayor Rudolph Giuliani become chairman. Giuliani has been publicly coy about the possibility, saying only that his consulting firm is advising Matlin on WorldCom's corporate affairs. Capellas has not answered directly when asked if he would step aside for Giuliani.

"But he's smart not to make an issue of these," said Brian Foley, a White Plains, N.Y., executive compensation consultant. "He got plenty of money to leave HP and he's got nothing to lose. For a couple of weeks he's sitting there kicking the tires until the court approves it. If it's not approved, he can just pick up and go somewhere else."

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