Two federal judges today approved an employment contract that guarantees incoming WorldCom Inc. chief executive Michael D. Capellas $20 million over three years and includes an unusual incentive provision that ties his future bonuses to the ethical standards of the scandal-plagued firm.

The actions end weeks of uncertainty for Capellas, who began work at WorldCom on Dec. 2 but could not officially assume his roles as chairman, chief executive and president until his compensation package was approved by U.S. District Judge Jed S. Rakoff and Bankruptcy Court Judge Arthur Gonzalez.

Rakoff, who is presiding over the Securities and Exchange Commission's fraud case against WorldCom, objected to an earlier version of the pay proposal last week, saying it was so excessive that it raised questions about the telecommunications firm's commitment to reform.

But today Rakoff enthusiastically approved the deal after Capellas agreed to reduce an $18 million grant of restricted stock to $12 million and to tie future bonuses to his ability to instill new corporate ethics at the company.

Capellas, the former chief executive of Compaq Computer Corp., will have the opportunity to earn the trimmed $6 million back in the form of a performance bonus, which would need the approval of the board of directors and Richard C. Breeden, the monitor appointed by Rakoff to oversee WorldCom's business practices.

Capellas will earn $1.5 million annually with a guaranteed bonus of $1.5 million for 2003, under the new deal. After 2003, Capellas will be eligible for a $1.5 million bonus based on his performance. The company also agreed to pay his moving expenses and give him the use of the corporate jet for work-related purposes.

In an unusual twist orchestrated by Breeden during the past week, Capellas agreed to link his bonuses to the accuracy of the company's financial statements and to the company's adherence to its own code of ethics.

"These professional standards are expected to be serious, they are not a high-jump hurdle set six inches off the ground," Breeden said at today's hearing in Rakoff's New York courtroom.

Capellas told the court he enthusiastically supported the agreement, which he hopes will mark a turning point for a company that has improperly accounted for about $9 billion.

WorldCom's bankruptcy attorney, Marcia L. Goldstein, submitted a study showing that Capellas's compensation would rank in the bottom third of similar-size telecommunications companies. But Rakoff made it clear that even at its reduced level he thought Capellas's compensation would be high.

"I've never had a case involving a baseball free agent, but now I know what it feels like," Rakoff said from the bench.

Rakoff suggested that CEOs are generally overpaid, noting that their average compensation has increased 571 percent between 1990 and 2000, a period in which the average American worker's pay rose 50 percent. The judge attributed the disproportionate pay increase for CEOs to the "internecine relationships between top executives and their boards of directors that became relevant during the last 10 years," adding: "Nowhere is this better illustrated than in the case of WorldCom."

Rakoff pointed out that at a time when WorldCom was laying off 6,000 employees its board approved a $10 million bonus for its founder and former chief executive, Bernard J. Ebbers. Ebbers was later forced to resign in April amid controversy over the company's decision to lend him $408.2 million.

In October, under pressure from Breeden, Stiles A. Kellett Jr., the director who played a critical role in approving the loans, also resigned from the company's board.

Now that Capellas has officially taken his new role, the six board members who were with the firm when the improper accounting took place are expected to resign. Among them are former WorldCom chairman Bert C. Roberts and former chief executive John W. Sidgmore. Capellas assumed both their duties today.

Earlier this month, former director Judith Areen stepped down, saying she wanted to make room for Capellas to bring in his own board. In her resignation letter, Areen encouraged other board members to follow her lead, but so far none have left.

Sidgmore, a top company executive, has hinted that he will step down from the board if asked by Capellas.

Capellas declined to comment. But a source close to the company said the resignations are expected within a few weeks.

Despite the company's tainted past, Rakoff used his closing comments to praise the company's current directors, noting that the board has taken steps to correct the problems at the company, including hiring Capellas and cooperating with the SEC and other investigations.

"No company with this kind of history has started so well toward turning itself on a more positive path and that has to be recognized, too," Rakoff said.

Michael D. Capellas could not officially assume his roles at WorldCom until his compensation package was approved.