Nortel won court approval Friday to pay eight top executives retention bonuses as the telecommunications company reorders its finances under bankruptcy protection.

The company, under bankruptcy protection since January, says the payouts are necessary to boost flagging morale at the former tech giant.

But the ruling from U.S. and Canadian bankruptcy judges comes despite a legal challenge from about 60 former Nortel employees who were laid off without severance packages three months ago. The severance was withheld under the terms of Nortel's bankruptcy protection.

Eli Karp, a lawyer representing the former employees, said his clients are dismayed with the ruling, the Globe and Mail reported Friday afternoon.

"In the context of the global financial climate the way it is today, our clients object to millions of dollars of bonus payments being made," said Karp.

Earlier this month, Nortel received approval from courts in Canada and the U.S., to pay US$23 million in payments to a group of about 84 employees, according to BNN's Michael Kane.

The eight execs would receive a share of that bonus pool.

"The bonuses would be paid to managers who were successful in cutting costs in their department, in accordance with Nortel's restructuring plan," Kane told CTV's Canada AM.

The latest list of payees will not include chief executive Mike Zafirovski, Nortel said.

The controversial proposal comes before the courts as insurance giant American International Group faces tough criticism in the U.S. over its plan to pay bonuses to top execs, after accepting billions in bailout money from Washington.

Diane Urquhart, an independent financial analyst, said the Nortel plan will eventually cost Canadian taxpayers, but the effect is less obvious.

"To cut costs you terminate employees and also to cut costs you don't pay those terminated employees severance pay. But clearly these employees still have monthly bills to pay and they're going to go on public employment insurance plans," Urquhart told Canada AM.

"Unlike in the AIG situation where there was American taxpayer outrage, this is a more subtle use of public funds that most people don't recognize is going on. However, we should be outraged. In this time of economic stress, there are great strains on the employment insurance system of Canada."

Nortel's creditors wanted the high-paid executives excluded from the bonus plan and called for an earnings outlook for 2009.

Other lawyers involved have agreed with that viewpoint, or asked that the incentive payments will actually reward employees, not just keep them from leaving during uncertain times.

"Our clients take no objection so long as there is no incentive plan that rewards employees for simply staying with the company or that gives them an incentive to reduce benefits for former employees and retirees," Mark Zigler, a lawyer at the Koskie Minsky law firm in Toronto, which represents former employees of Nortel, told The Canadian Press.

Nortel has been under bankruptcy protection since January, and is required to try to get the most for its creditors. Those debt-holders include the carriers of US$4.5 billion in debt, former staff members owed severance pay and retired managers.

Separate bonus programs cover about 95 per cent of Nortel's employees, which award incentive payouts on a quarterly basis.