September 2, 2005 10:22 AM PDT
MCI chief's severance deal nears $40 million
For Capellas, the MCI parachute is a much larger package than the one he received three years ago when he left his post as Hewlett-Packard president. Capellas, who served as Compaq chief executive before its merger with HP, received $14.4 million in that severance deal.
Between the two severance packages, Capellas could stand to receive a combined cushion of nearly $54 million in roughly a three-year period.
MCI shareholders are expected to approve the $8.4 billion Verizon merger on Oct. 6. Industry watchers do not anticipate that Capellas will remain at the combined company long, given he has no contract that requires him to stay for a designated period during the transition.
"Following the proposed merger, it is anticipated that Mr. Capellas would be entitled to terminate his employment for good reason," according to MCI's proxy filed with the SEC.
Capellas defines "good reason" as a demotion or removal from any of his positions, a material adverse change by the employer in his duties or responsibilities, a decrease in base pay or MCI's failure to provide performance bonuses as provided in the agreement.
Capellas, 51, currently serves as chief executive and president of MCI.
The MCI severance package calls for Capellas to receive a lump sum payment of three times his base salary and a target bonus. All MCI options and stock grants he has received to date would vest immediately, according to the SEC filing.
Capellas received a similar payout plan at HP, where he landed three times his salary and bonus.
HP shareholders, however, were not happy with doling out severance packages of that size. HP investors passed a resolution roughly six months after Capellas left that called for shareholder approval for severance packages that exceeded 2.99 times an executive's salary and bonus. The initiative, passed during the company's annual meeting, was not binding and the company said its board would take it under advisement.
MCI, of course, will not have to worry about such an issue since it will cease to exist as an independent entity following the Verizon merger. The companies have previously indicated that they expect to close the transaction by the end of the year.
The merger will bring to close a colorful past for MCI, which previously was called WorldCom. Capellas joined the company in 2002, when it was still known as the infamous WorldCom and facing a $9 billion accounting scandal, a probe by the SEC and a Chapter 11 bankruptcy.
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