Nortel CEO defends bonus payments to executives

* Bonuses “critical” to preserving value at Nortel -CEO

* Nortel CEO confirms bailout talks with government

(In U.S. dollars unless noted)

TORONTO, June 18 (Reuters) - Nortel Networks Corp NT.TO CEO Mike Zafirovski was forced on Thursday to defend his company's decision to pay executives millions in retention bonuses even as the insolvent telecom equipment maker decided to stop paying severance to many laid-off workers.

“We are absolutely convinced that paying the annual incentive plan and the retention (plan) is critical to preserve value within Nortel,” Zafirovski told a parliamentary committee in Ottawa.

Nortel has decided -- with court approval -- to pay out about $45 million in bonuses for close to 1,000 employees, despite its filing for bankruptcy protection in January.

It had previously argued that the bonuses were needed if the company’s restructuring was going to be successful.

Nortel has a total of about 30,000 employees. As it slashed thousands of jobs in recent months, it revealed it would not pay severance to many of them to conserve funds as it fights for its life under court protection from creditors.

Zafirovski told the hearings on Thursday that the company is “working around the clock” to optimize the value of the business.

Meanwhile, legislators grilled the chief executive about the contents of the meetings he had with government ministers regarding any potential help the company might receive.

They also urged him to stay and listen to former Nortel employees who have suffered as a result of the company’s collapse.

Zafirovski confirmed he spoke with federal government officials late last year and in early 2009. He said he was trying to secure financial assistance for Nortel in hopes of keeping the Toronto-based company from filing for bankruptcy protection.

He said the request for help was denied.

Then, in mid-January, Nortel announced it would file for protection, blaming the economic crisis for derailing a turnaround effort that began in 2005.

The company has announced virtually every one of its business lines is for sale. However, no major buyer has materialized thus far.

Nortel’s stock is nearly worthless, changing hands at 18.5 Canadian cents on the Toronto Stock Exchange. In mid-2000, at the height of the company’s success, it was worth more than C$1,100, adjusted for a stock consolidation that took place in 2006.

$1=$1.12 Canadian Reporting by Wojtek Dabrowski; Editing by Frank McGurty