Ciena is ratcheting up its compensation packages in an effort to retain key executives as the company’s return to profitability has led to outside offers for its top talent.

“The [board’s compensation committee] is aware of several attempts to recruit members of the executive leadership team to join other companies,” Ciena said in regulatory filings recently. “Ciena’s executives, having managed a successful turnaround, are particularly attractive to other employers that are searching for executive talent, including established companies [and an] increasing number of early-stage companies. The committee is concerned that the current environment poses a threat to the retention of key employees.”

Last May, as Ciena neared a return to profitability, the equipment vendor’s board opted to reinstate the executive bonus program it had suspended in 2002 amid the telecom industry downturn. Ciena began awarding bonuses again on a quarterly basis starting with last year’s third fiscal quarter (which ended in July). The company surpassed the goals set for both the third and fourth quarters; as a result, it awarded bonuses in the amount of 100% and 150% of their targets, respectively.

After four years without bonuses, Chief Technology Officer Stephen Alexander and Chief Operating Officer Arthur Smith received cash bonuses of more than $101,000 for 2006, while Chief Financial Officer Joe Chinnici got a $164,000 bonus, and Chief Executive Officer Gary Smith--whose base salary is down 23% from two years earlier--got a $312,500 bonus.

In addition, the board awarded nearly $1.2 million in restricted stock to the CEO for fiscal 2006 as well as nearly $472,000 in restricted stock to each its CTO and COO and nearly $354,000 to its CFO. All received an options package as well, but the board put much greater emphasis on restricted stock awards, citing industry trends in that direction.

“With the restoration of the bonus program, the total cash compensation of Ciena’s executives is now competitive with that of executives in the peer group,” Ciena said.

To further help retain key executives, the board--in consultation with the CEO, who is also a director--decided to fix executive equity awards at the high end of the range seen among Ciena’s peers. The size of the awards vary greatly among Ciena executives depending on the roles they perform as well as “their perceived importance to Ciena’s future and the risk that they would leave the company if not appropriately rewarded and incentivized.”

Ciena’s CEO and CFO each cashed in more than half a million dollars in company stock last month.

In an October 2006 meeting, the board decided not to increase the salaries of any top management. But it made exceptions for two officers in particular that it said were asked to assume increased responsibilities: the CTO, whose base salary was raised 8% in fiscal 2006 to $325,000, and the COO, whose base salary was raised 18% to $325,000. The board also raised both men’s target bonuses from 50% to 75% of their base salaries.

This month, Ciena also revised its agreement with its CEO regarding severance payments received if he is let go due to a change in corporate ownership. The lump sum Smith will receive if Ciena is acquired by another company was reduced from $3 million to $2 million (or the sum of his base salary and annual bonus at the time--whichever is greater).