The French-US company said its board of directors and former chief executive Michel Combes had agreed to reduce his compensation to a maximum of €7.9 million.
The payout, coming as Combes jumps ship to a telecoms operator while troubled Alcatel-Lucent's buyout by its Finnish rival Nokia has not been completed, sparked a storm in France where executive compensation is a sensitive issue as unemployment hovers around 10 percent.
Combes had insisted that most of the compensation was not a golden parachute but instead a reflection of the increased value of the company's stock following the Nokia buyout as, like most executives, he received shares as compensation.
He had given up in April a 2.4-million-euro payment due to him when leaving the company.
However the package sparked not only criticism from ministers in France's Socialist government, but also investigations by authorities.
Alcatel-Lucent said it took into account recommendations from two government bodies as well as trade associations, including cutting a planned €3.1-million payment as part of a non-competition agreement into line with the level prevalent in France.
Some of the compensation will also be made contingent on the successful completion of Nokia's purchase of Alcatel-Lucent.
But the French government kept up pressure on Combes.
Spokesman Stephane Le Foll said Combes had only gone half way and that "the figures certainly need to be adjusted some more" as he "had done something unacceptable".