(The author is a Reuters Breakingviews columnist. The opinions expressed are his own.)
By Quentin Webb
LONDON, Sept 25 (Reuters Breakingviews) - Stephen Elop’s $25 million golden parachute is hard to defend. Nokia’s (NOK1V.HE) outgoing boss stands to earn this in the $7.2 billion sale of the group’s handset business to Microsoft (MSFT.O), his old employer. That has unnerved egalitarian Finland, which is already sore about the decline of a national champion. Sloppy communication hasn’t helped. But what’s most awkward is that Elop has it both ways: he collects a payoff usually meant to compensate bosses for being fired or sidelined, while also taking a major role at Microsoft.
The outcry raises several questions. First, is the payoff merited? That’s harder than it first looks. Nokia’s value has plunged since Elop arrived in 2010. But he inherited a business in steep decline, secured a future in telecoms equipment, and hived off the phone unit to a deep-pocketed new owner. Many turnarounds end in far worse.
Second, is it culturally appropriate? U.S. corporations throw around multi-million dollar packages like confetti. But Finland is an equal kind of place. Incomes for the top 10 percent are 5.4 times those at the bottom, while the difference Stateside is 15.9 times. Downsizing Nokia has carried social costs. And the company’s importance to Finland meant the deal was always likely to draw special scrutiny. So Elop cannot be surprised at the furore, even if 70 percent of his money will come from Microsoft.
Third, was it communicated properly? Here Nokia clearly failed. The bulk of Elop’s payoff relates to stock awards that will vest immediately, worth about 14.6 million euros. Nokia’s interim head, Risto Siilasmaa, wrongly claimed the same would have been true of Elop’s predecessor. That lapse compounds the awkwardness.
Fourth, is it the right thing to do? The rationale for “change of control” payouts is to compensate CEOs for losing their jobs or being shunted sideways after a takeover. Yet Elop is returning to Microsoft to head up an enlarged devices business – an important and presumably well-paid role. Sure, his payment might be contractually defensible. But it’s hard to justify to a wider world rightly sceptical of outsize executive rewards.
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- Nokia's interim boss Risto Siilasmaa said he erred in describing a clause in former Chief Executive Stephen Elop's employment contract, which will result in an 18.8 million euro
($25.4 million) termination payment, as similar to his predecessor's, Reuters reported on Sept. 24.
- Elop is due the payment as part of Microsoft’s 5.44 billion euro purchase of Nokia’s handset business. Elop joined from the U.S. software giant in 2010 to turn Nokia around, and is returning to run an enlarged devices business at Microsoft.
- Siilasmaa had previously said former Nokia CEO Olli-Pekka Kallasvuo had a similar employment deal, but on Sept. 24 said he was wrong. "All the details were not checked," he told Finnish daily newspaper Helsingin Sanomat. Nokia confirmed his remarks. Finnish Finance Minister Jutta Urpilainen, a leader of the Social Democratic Party supported by workers' unions, said the sum raised questions about fairness.
- Nokia EGM proxy materials link.reuters.com/guj43v
- Reuters: Nokia mistaken in saying Elop's contract was same as predecessor's [ID:nL4N0HK3AL]
Eloping in chains [ID:nL2N0GZ0N9]
Unexpected Finnish [ID:nL6N0GZ174]
- For previous columns by the author, Reuters customers can click on [WEBB/]
(Editing by Chris Hughes and Sarah Bailey)
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