Qwest bonuses top $7 million
Five executives get huge payouts as revenues drop

By David Milstead, Rocky Mountain News
February 19, 2005

Qwest is paying more than $7 million in bonuses to its top five executives, including nearly $3 million to CEO Dick Notebaert.

The compensation committee of Qwest's board decided this week that the company met its "pre-established performance targets" for 2004 and awarded the payouts.  The targets, selected a year ago, were not disclosed.  Qwest also uses "individual performance" criteria to calculate the bonuses.  The criteria were not disclosed.

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In addition to Notebaert's $2.97 million, Chief Financial Officer Oren Shaffer got $1.68 million and Executive Vice President Barry Allen $1.1 million.

Qwest disclosed the payouts as part of a Securities and Exchange Commission filing on bonus awards.

Qwest did not detail stock-option awards, salary increases, or other current compensation, all of which will be contained in a proxy statement to be filed later this year.

In 2004, Qwest saw its revenue drop by nearly $500 million to $13.8 billion and its operating loss widen by $34 million to $288 million.  Net income swung from $1.5 billion to a $1.8 billion net loss in 2004.

Qwest stock was essentially flat in 2004, rising less than 3 percent.  By contrast, competitor Verizon, chosen by MCI over Qwest as a merger partner, was up more than 20 percent in 2004.

Nelson Phelps, the director of the Association of U S West Retirees, has been a harsh critic of pay practices at Qwest.

"I think the amount of bonus given is way out of whack with the performance of the company," he said.  "I don't think any of them deserve any kind of extra bonus beyond their salary - the shareholders haven't had one."

Qwest spokesman Steve Hammack said the bonuses are "completely appropriate when you look at the continuing improvement Qwest has made in customer service and in terms of shareholder value."

Notebaert took the reins of Qwest after the board sacked CEO Joe Nacchio in 2002.  He inherited an SEC investigation brought on by the accounting practices of the Nacchio administration, and a debt-laden giant in a dinosaur industry.

Notebaert is widely credited with helping Qwest avoid bankruptcy through asset sales and creative refinancing.  The SEC matter was finally settled late last year, but the stock remains below its levels in the last days of the Nacchio administration.

Qwest gave Notebaert 5 million stock options in 2002 with an exercise price of $5.10 apiece.  With the stock trading in the high $3 to low $4 range, he is unable to use them.

Notebaert's 2004 bonus tops the $2,925,000 incentive he was paid in 2003, when $825,000 of that was guaranteed.  Shaffer's bonus is smaller than 2003's $2,338,800; of that, $600,000 was guaranteed.

Qwest bonuses:

Dick Notebaert, CEO   $2,970,000

Oren Shaffer, CFO    $1,680,000

Barry Allen, Executive VP    $1,109,110

Richard Baer, Executive VP    $900,000

Paula Kruger, Executive VP    $362,112

David Milstead is finance editor of the Rocky Mountain News. He can be reached at 303-892-2648 or milstead@RockyMountainNews.