UPDATE 1-Nortel asks court to hire Mercer pay consultants

(Adds Nortel comment. In U.S. dollars unless noted)

By Wojtek Dabrowski

TORONTO, Feb 24 (Reuters) - Struggling telecom equipment maker Nortel Networks Corp (NT.TO) is seeking court approval to retain compensation consulting firm Mercer at a cost of hundreds of dollars an hour, even as it fights for survival under bankruptcy protection.

The move is noteworthy because Nortel -- North America's biggest maker of telephone gear -- said in November it would look to cut back or eliminate consulting relationships, and also because of the cost the company expects to incur for Mercer's expertise.

In a U.S. court filing, Nortel states it will pay Mercer analysts working on its compensation and benefit plans a rate of $225 an hour.

Junior associates will cost $250 to $300 an hour, while senior associates cost $350 to $450 an hour. A principal working on the file costs $667 an hour, while a specialist principal costs $725 to $870 hourly, Nortel states in a filing made with the U.S. Bankruptcy Court for the District of Delaware.

The move comes about a month after a group of the company's laid off employees asked Nortel to restore severance payouts that it has suspended.

The company states in the filing that the Mercer fee structure is "reasonable and comparable to those generally charged by compensation specialist firms of similar stature".

A Nortel spokesman added: "In order to execute a highly complex restructuring program, Nortel has sought counsel from experts with specific experience working with companies who have successfully managed their business while under creditor protection."

The company says in the filing that Mercer has "substantial knowledge of (Nortel's) current operational condition," which could help it design an incentive plan for key employees.

Toronto-based Nortel and Mercer, a unit of New York-based Marsh & McLennan Cos (MMC.N), already have a long-standing advisory relationship.

Nortel filed for bankruptcy protection in Canada and the United States last month, blaming the current economic crisis for derailing a turnaround effort that began in 2005.

It had about $2.4 billion in cash when it sought court protection from its creditors and about $4.5 billion in long-term debt, according to court documents.

As part of its attempt at turning around its business after the tech bubble burst early this decade, the company has cut thousands of jobs around the globe. Its workforce stands at about 30,000 today, down from a peak of more than 90,000 in 2000.

Many analysts expect further job cuts as the company's restructuring proceeds. Nortel itself said earlier this month that it is working on a "detailed plan" to further reduce its workforce, without providing details.

Nortel shares were unchanged at 10.5 Canadian cents on the Toronto Stock Exchange on Tuesday. In mid-2000, at the zenith of the company's success, the stock was worth more than C$1,100, adjusted for a share consolidation that took place in late 2006.

($1=$1.24 Canadian) (Reporting by Wojtek Dabrowski; editing by Peter Galloway)