Departing Nokia Fat Cat needs all his unfeasibly large bonus to finance his divorce.
Sep 26, 2013
The Finns tend to be a phlegmatic and pragmatic people. They are not over-demonstrative, they don't wear their hearts on their sleeves, they are pretty punctilious in their public lives and still in possession of (an only slightly frayed) social cohesion and a sense of rectitude and social responsibility in business. Is it any wonder then that they are so incandescently angry about the huge payoff that Stephen Elop is getting for his utter failure as the CEO of Nokia?
The day before yesterday, Finland's biggest circulation paper, Helsingin Sanomat, reported that Nokia top brass, knowing what uproar would result and what opprobrium would be piled on their heads if Elop's US$25.5 million bonus payment went ahead and became public knowledge, pleaded with the man who is already a multi-millionaire to forgo some of the insultingly enormous payoff. Would he ? He would not.
In 2010 Stephen Elop left Microsoft to become the first non-Finnish CEO of Nokia. He got a US$6.2 million bonus simply for taking the job. Three years later, with Nokia now a complete basket case, he is to get a $25.5 million bonus to go back to Microsoft where, it is rumoured, he stands a very good chance of being chosen to lead the company when Steve Ballmer retires.
Elop's payoff was disclosed in a Nokia regulatory filing. Under his leadership the company's fortunes went from bad - to worse - to hopeless. Three years into his tenure, Nokia's mobile telephony business, the jewel in the company's tarnished crown, was sold to Microsoft for $7.2 billion. As part of the sales agreement, Stephen Elop will go back to work at Microsoft.
Whilst he was 'running' Nokia Mr. Elop maintained his home in Redmond, Washington State in the US. Neither he nor his family moved to Finland, he merely wafted back and forth held aloft in the the updraft from Nokia's burning platform.
And now we know why his wife, Nancy, and five children didn't make the move to Finland. He is in the middle of divorce proceedings. The pair have been married for 26 years and have been separated since October 2012 when the marriage "irretrievably broke down". However, Elop petitioned for divorce only on August 1 this year - when negotiations about the sale of Nokia to Microsoft were already underway.
Elop's payoff is based on Nokia's share price as at the closing bell on September 6 this year. After he took the reins Nokia's share price has fell by more than 34 per cent - and that includes the 'dead cat bounce' stock price increase that followed the announcement of the sale to Microsoft. Seventy per cent of the $25.5 million apparently due to the CEO will come from Microsoft but 30 per cent will actually be paid by Nokia - and that is causing ructions in Finland.
To make matters worse, in a cack-handed effort to make out that things aren't as bad as they really are, Risto Siilasmaa, chairman of the Nokia board, went on the record to claim that Elop's payoff package is "essentially the same as those of previous chief executives".
It is, however, nothing of the sort. Nokia quickly back-tracked (after the CEO of Finland’s Equity Investor Association called Siilasmaa’s obfuscatory claims about Elop’s payoff package “unforgivable" and admitted that Elop's contract is watertight and they are stuck with it. It seems it guarantees a $25.5 million bonus (to be paid quickly) if he sold the handset unit.
It seems that existing non-compete clauses were altered to permit Elop to work for Microsoft after the sale of the Nokia handset division and, according to Finland's Yleisradio, “in complex legalese, it also changed to allow Elop to gain maximum compensation if leaving the company at the moment of operations sales or thereafter.”
Unsurprisingly the scandal is now escalating. Finnish Prime Minister, Jyrki Katainen, went on television to say that Elop’s payoff and his "divorce rationale" is "an outrage," and added, “apparently the practices of rewards by large corporations all over the world are so exceptional that they cannot be understood with common sense”.
Then the Minister of the Economy, Jan Vapaavuori, told the Finnish press, “I find it difficult to understand the merits of this bonus,” while the Finance Minister, Jutta Urpilainen opined that the growing scandal scandal “may be a threat to social harmony” and has created “a general toxic atmosphere.”
Setting aside the questions about Nokia's apparent but unannounced intent always to sell of its crown jewels while Elop was in charge, the man himself says that he can't forgo any of the money that is contractually due to him (no matter how morally dubious accepting it may be) because he and his wife are divorcing and, he claims, his estranged spouse will not accept any diminution in his severance payment because it will affect what she gets in the divorce settlement.
Nokia is now experiencing the worst media coverage it has ever had in its entire 160-year existence. The payoff package is a PR disaster of the first magnitude and the company, already on the back foot, is making matters worse by lashing out at the Finnish media which, in the past, always treated Nokia with respect on sometimes with unwarranted servility.
But now, too late, the worm has turned and the Helsingin Sanomat, investigating Nokia's filings with the US Securities and Exchange Commission, quickly discovered that Elop’s contract bears absolutely no relation to anything that has gone before.
There's a much bigger story here and now that the Finnish press has got its teeth into Nokia perhaps we'll find out a lot more about how Elop was hired and just how his contract came to be so radically different from those of previous, Finnish, CEOs of Nokia.
The Forbes columnist Tero Kuittinen wrote that the contract stated Elop’s bonus was dependent on Nokia’s share increase from its lowest point, so “driving down the share price by 80 per cent and then bouncing it a bit would be enough.” And guess what? Yup. That's exactly what happened. On September 3, the day Microsoft announced the buy-out, Nokia's share price shot up in value.
Back in 1600 when Hamlet was first played, William Shakespeare wrote for it the immortal line "Something is rotten in the state of Denmark." Some 400 years later the stench is coming from further north.
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