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UPDATE 2-Bausch & Lomb CEO is denied bonus over bio gaffe

(Adds analyst quotes paragraphs 7-9)

By William Borden

NEW YORK, Oct 29 (Reuters) - Bausch & Lomb Inc. said on Tuesday Chairman and Chief Executive Ronald Zarrella is forfeiting a bonus of at least $1.1 million for falsely claiming to have completed a masters degree.

He will still receive his $1.1 million base salary, $1 million in long-term incentives, stock options and other perquisites associated with the top job at the eye care company.

Zarrella will forfeit his 2002 annual incentive bonus, of which $1.1 million was guaranteed under his contract. The bonus could have climbed as high as 150 percent of his salary, or $1.65 million, if the company met its objectives.

Zarrella had claimed in his biography that he completed a Masters in Business Administration degree from New York University, but he then corrected it about two weeks ago after it was revealed that he never completed the degree.

"There is simply no adequate excuse for a misrepresentation of this kind, and thus I offer none," Zarrella said in a letter to Bausch & Lomb's board. "Moreover, I am mindful that the problem was compounded by my inadequate response to you and our employees when the initial reports appeared 10 days ago."

The board said it reaffirmed its support for Zarrella, who attended New York University for several years in the 1970s, but withheld the bonus so as not to let the matter go without any consequences.

"It's a pretty significant penalty. It's a lot of money," said Robert Baird & Co analyst Suey Wong.

Wong said about Zarrella, "A lot of people are beating up on him now, but he's done a great job since he's been there."

Wong, who doesn't own any Bausch & Lomb shares and whose firm does no banking business with the company, describes Bausch & Lomb as a "turnaround story that's coming together pretty well" and he has an "outperform" rating on the stock.

Zarrella returned to Bausch & Lomb in November 2001 after serving as executive vice president of General Motors Corp. and president of GM's North American division.

Zarrella, who was chief operating officer and president of Bausch & Lomb before joining the automaker, held a variety of executive positions at the eye care company between 1985 and 1994.