Nokia's ex-CEO severance payment highly contestable

Nokia’s General Meeting will be held in a few days in Helsinki (June 17th). On this occasion, ECGS issued its annual proxy reporand took the opportunity to raise once again already expressed concerns at the end of 2013 regarding the amount of severance payment granted to ex-CEO Mr. Elop. Indeed, in September 2013, after having concluded the sale of D&S Business to Microsoft, Mr. Elop’s contract was amended and under the terms of the new amendment, Mr. Elop resigned from his position as CEO as of 3 September 2013 and assumed the role of Executive Vice President, Devices & Services.


Consequently, after the closing of the Sale of D&S Business, Mr. Elop transferred to Microsoft as agreed with Microsoft. In accordance with his service contract he received a severance payment of EUR 24.2 million in total. This amount included: base salary and management incentive EUR 4.1 million and value of equity awards EUR 20.1 million. The amount of the equity awards was based on the Nokia closing share price of EUR 5.28 per share at NASDAQ OMX Helsinki on 24 April 2014. Pursuant to the terms of the purchase agreement with Microsoft entered into in connection with the Sale of D&S Business, 70% of the total severance payment was borne by Microsoft and the remaining 30% of the severance amount (EUR 7.3 million) was borne by Nokia.

We already expressed our concerns in our previously issued report in relation to the Extraordinary General Meeting held on November 19th to confirm the sales of the Devices and Services Business to Microsoft for a total consideration of EUR 3.79 billion. In our view, severance payments should be intended to reimburse an executive for the loss of compensation in the event of a change of control or without cause. According to the notice, it is anticipated that upon closing of the deal, Mr. Elop will directly transfer to Microsoft. As such we highly question his loss of income for which the severance should be intended to. Therefore we would like to do moral appeal on Mr. Elop’s ethical standards to waive a part of his bonus (particularly the part to be paid by Nokia amounting to EUR 7.3 million).


As there is no vote on remuneration proposed to shareholders in Finland, this situation led us to recommend opposing the discharge of the Board of Directors under resolution 9 of the coming General Meeting as we consider that Nokia’s Board of Directors has been in serious breach to not adequately design/monitor the CEO’s contract, particularly in light of Mr. Elop's excessive termination payments which is clearly not in the interest of shareholders. In addition we do not consider Mr. Elop’s track record since he took over the position in 2010 particularly gleaming.  Indeed, as part of his turnaround effort, Nokia Chief Executive Officer Stephen Elop has cut more than 20,000 jobs in 4 years and closed production and research sites since. According to Bloomberg, “The CEO, who joined from Redmond, Washington-based Microsoft, started betting on his former employer’s operating system after Nokia’s homegrown Symbian software fell out of favor among consumers and will now return to Microsoft.”

Finally, even if, we consider from a shareholder point of view,  the sale of the company’s Devices & Services business to Microsoft led by Mr. Elop, currently of vital importance for Nokia ‘s future existence, and we acknowledge that Nokia’s share price has consistently increased since the announcement, we deem such an amount unjustified.  In our view this kind of operation are fully part of the CEO’s position and should not trigger additional reward.  

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London, May 30, 2014