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What’s with Stephen Elop’s getting millions for what many consider to be a failure?

Today it seems everywhere you turn in the financial media, there is a story about how Nokia’s chairman screwed up in disclosing information about Stephen Elop’s bonus package to the media. Some of the reporting on it is a bit wonky, so I thought I’d clear things up.

Long story short, Nokia’s chairman was initially quoted as saying Elop’s contract was essentially the same as that of the prior CEO, Olli-Pekka Kallasvuo. When a Finnish newspaper, “Helsingin Sanomat”, dug into his employment contract, which is published to the SEC website, they discovered one important major difference. Elop stands to have his stock compensation vested in an accelerated manner should he resign following a change of control. The prior Finnish CEO didn’t have this clause. The difference amounts to about $25 million, according to various other folks who did the math (I didn’t, and I’m assuming their math is correct).

People love to complain about these things. A Forbes article even went so far as to say that Elop gets paid specifically because he managed to get the stock to go down, and then sharply up again on a takeover bid from Microsoft. The Forbes piece made it seem like this roller coaster action was a requirement to trigger the bonus.

That’s not true. Here’s what is true:

In the US, it’s quite common for executives to be awarded stock as part of their compensation. Sometimes the stock is a stock option, with a strike price, meaning that it has no value if the stock drops below a certain value. But other times, and it looks like this is increasingly common, executives are paid in restricted stock units. This stock is granted to the executive according to a schedule. They’re being given part of their bonus in actual stock, not a stock option, so it always has value even if the stock drops a lot.

The best way for a CEO to make a ton of cash in this situation is to actually make the company more valuable. The higher the share price goes, the more money the CEO makes, which is reasonable. That’s the idea behind the compensation scheme. I can assure you that Stephen Elop did not have some weird arrangement that caused him to make more money by Nokia’s failure versus its success.

But unfortunately, CEOs with accelerated stock grant “change of control” clauses in their contracts will also make a lot of money (less, but still a lot) when they sell the company. So in Nokia’s case the stock price dropped tremendously until Microsoft put in a bid. When Nokia accepted the bid and Elop stepped down this was enough to trigger an accelerated bonus.

Nokia's stock for the last 12 months (Source: MSN Money)

For most of us, we look at the bonus ($25 million) and we think it’s totally insane. But it’s still a lot less money than he would have made had he successfully turned the company around.

I think executives need clauses that protect them against unemployment in the event of a change of control. But boards of directors, in my opinion, are not exercising enough thought in constructing these executive employment contracts. Elop isn’t losing his job. He’s going to be the head of Microsoft’s handset business. He’ll probably wind up with another sweetheart executive compensation plan through Microsoft. That’s not how this is supposed to work.

I also think boards have gone too far in using stock grants versus stock options. I don’t think it makes sense for a CEO to make millions of dollars for screwing up. Never, ever should this happen.

So to wrap up, yes, the Nokia chairman screwed up when talking about Elop’s contract in the press last Friday. But the contract that Elop has is not unusual, and it certainly did not reward Elop specifically for causing the stock to drop, be taken over, and go back up again (in that specific order). It rewarded him for the sale of the company, but much less than it would have rewarded him had he successfully fixed Nokia. And finally, I think boards of directors should revisit how they setup executive compensation contracts. No executive should ever be handed millions of dollars for a screw up.

By the way, Thorsten Heins of BlackBerry is set to take home a huge chunk of change for a similar screw up should Fairfax succeed in taking the company private and decide to show him the door. When and if that happens, expect to see more stories about this all over again.

(Chris Umiastowski is a contributing financial writer to the Mobile Nations network. You can see the rest of his posts here at AndroidCentral, iMore and CrackBerry.)

161 Comments
  • Still think no CEO is worth 25M regardless....
     
    By the way,...another great article Umi
  • That's like saying no athelete or actor is worth millions. If Elop was able to make a lot of money for the share holders, he would be worth the even bigger bonus he would have recieved. The problem here is that the stock is still lower than it was when he took over.
    They should have added a simple clause that requires the stock price to be above or at least close to the stock price NOK was at when he took over
  • The CEO of AT&T Wireless oversaw the company from $29/share down to $4/share in less than 18mths. He sold the company off to Cingular and left with a $21m golden parachute; a parachute that was made 1mth before they put the company up for sale.
     
    There is no value and creating value. There is only reward for making money. :(
  • Umm actors and athletes are not worth millions....weird
  • "actors and athletes are not worth millions....weird"   I dont know where you live... but the best Portuguese football player is definitely worth millions:    "According to "Football Finance," Real Madrid player and captain of the Portugal team, Cristiano Ronaldo, receives €1.083 million per month, or 13 million euros per year. In USD that is $16,222,700 a year. This is not counting the money he gets from sponsorships, appearances and advertising.  It has also been reported that he makes around $3.6 million in advertising."   Also, the best stricker from my home team was transfered to AS Monaco last year. Again, by millions!   "Falcao's transfer fee was €40 million with the fee potentially rising by €10 million based on performance-based clauses, making him the most expensive player in the club's history."   The two midfielders were also transfered to Monaco:   "FC Porto has reached an agreement with Monaco for the definite transfer of players João Moutinho and James Rodríguez. To assure the economic and sporting rights of both athletes, Monaco will be paying 70 Million Euros (45 for James and 25 for Moutinho), in what is now the biggest business in history of Portuguese football."   These are just small examples, as FC Porto is not even a big shark in European Football. So... how can you say athletes are not worth millions!?
  • You really want to get into this? With starving children in your neighborhood, these guys deserves to make that kind of money?
  • I don't set the prices... I'm just observing facts.
  • They're worth millions because they bring in a lot more. That's how business works. If people didn't want to watch sports or movies, they wouldn't buy tickets, jerseys or watch it on TV and the money will go away. That's why they deserve to make that money.
    It's also why a CEO gets incentives like Elop did. It's really up to the board to decide what their goal is and structure that contract approprietly (in Elop's case it looks like they blew it)
    The point is, if a CEO can take a company to new heights, he's worth the money. for Apple investors, getting Steve Jobs back to Apple was worth a lot more than they paid him, there are many other examples of CEOs who saved companies
  • No athletes are worth millions. They're all overpaid
  • I agree and the can be said about actors and basically about most high end jobs.
  • Stephen Elop, nokia killer. I used to like this bi*ch :(
  • You are worth whatever someone is willing to pay.
  • Cool...i am worth 12 gagillion dollars.
  • Only if someone is willing to pay you that much...so when someone does...let me know....until then i dont think you are worth quite that much...LOL
  • But I am willing to pay myself that much...no one said it can't be their self who is willing....
  • Fine. Let's amend that to willing and able.
  • you would have to have enough money to pay yourself to say that you are worth that amount of money. If you have that amount of money and are willing to pay yourself, knock yourself out. However if you don't have that much money and you cant find someone to pay you that much, you cant be worth it..although you can feel as though you are worth it which in many cases is woth more than any arbitrary number that can be placed on you... your self worth is far more important !!
  • I don't think you get it, no one is objectively worth £25 million, but if i said to you, "hey ill pay you £25 million to do this job" are you saying you would turn it down. No, of course you wouldn't. Therefore, everyone is worth whatever price someone will pay.
  • So a CEO that increases profit margins by 0.1% for a $25bn company isn't worth it?
  • The CEO types often die young, partially from life-style and stress, and partially from the type-a personality gogogo mentality. I work for one and all his executive friends are dying and he's not far behind, in his early 70s. So there is a price to pay.
  • I think this arrangement is less of a reward for bad behavior than it is a protection from the risks associated with jumping into the vortex of a struggling company mid-crisis and grabbing the reins.
  • We are really in no position to dictate what someone is worth; that is determined by, essentially, the talent market-its just economics. Regardless, the fact of the matter is that executives get paid obscene amounts independent of performance; that can be hard to swallow sometimes.
  • Thorsten Heins gets $50 million if blackberry sells. This isn't that uncommon. Like at Leo Apotheker.
  • Reading this article makes me truly wish that companies were in it truly "for the product". At the end of the day -- as with most things -- it's all about the money.
    Ah well. I still love Nokia.
  • same here
    still dont wanna accept the fact thats nokia wont make another phone
    probably the saddest moment in my life when the deal gets through
     
    :"(
  • The saddest moment in your life is when a phone manufacturer stops making phones?
  • Here no one i serious, dont get it that way...
  • That's what she said :p
  • Haha....
  • I don't. A company that's in it "for the product" ends up being misguided and making things like The Homer. By focusing on money, they focus on what sells, and while not being perfect results in better products than would result if all they cared about was the product.
  • I can't agree with you completely there. Just look at Dre Beats vs. Grado's. Who sells more/profits more? But more importantly, who makes the better product at the end of the day?
    But hey, these are headphones. Just saying though, some companies are still led by people concerned more about what they make than what they make ($).
  • That's not fair at all. Things are priced based on the value they provide for consumers. Brands like Apple and Monster have demonstrated it's not just quality that increases value, but the experience and projected image of owning the product-- by that token, Beats headphones are excellent devices because they continue to make people extremely happy.
  • It has to be that way.  They are in it to to protect their investors investments, which can include retimrent and pension funds.
  • Public companies have to be that way. When you are privately held you can focus on delivering a better product or service because you don't have to please the market. That's why you see Dell delivering a better lineup now that they are private.
  • Of course it's for the money. Companies are formed so that investors can invest their money in a venture that will eventually return that capital plus a return on their investment. No one starts a company because they love you. They start it because they see an opportunity that is unmet that can earn them money.
  • I expect Dell to make some more high-risk, high-reward moves in attempt to revitalize their position in the markets. That does not, however, mean they won't strike out hard before they hit the proverbial jackpot.
  • "No one starts a company because they love you." :D lol
  • My opinion, but if it wasn't for elop, Nokia would be even further in trouble. They are on an upwards curve now.
  • Without Elop, Nokia would be another Blackberry, Motorola, Palm or HTC. Today millions of Android fans plead and cry for a Lumia, you don't hear them crying for a Blackberry. Elop kept the brand and products valuable and attractive to consumers with devices featuring cutting edge innovation in attactive designs.
     
    It's also kind of hard to blame the guy for not making Nokia extremely profitable when every company in the phone biz not named Samsung or Apple is bleeding money and dropping like flies. Relative to the non-Samsung/Apple phone makers Nokia is doing great.  
  • +920
  • > Today millions of Android fans plead and cry for a Lumia, you don't hear them crying for a Blackberry.
    Blackberry even went through all the trouble to make Android apps run on their devices, and that obviously didn't save them. So for all those Android fans crying for a Lumia, they might have gotten a phone or two, but the company would have tanked a long time ago without Microsoft bailing them out.
  • He made it stable at least
  • Did you know nokia was testing android lumias? Microsoft had Elop a mission in exchange of lots and lots and lots of sweet money...
  • Are you trying to say that elop was somehow unaware of the android testing? That "Nokia" did it without his knowledge?
  • All that started when Elop wasnt at nokia yet. Nokia was losing share and they had to think of a solution, and one of the options was android. So if you search in Google, you will find out that nokia is still assembling lots of android lumias that NOW will never be officially released. :( As i say; i dont vuy a WP, I buy a Nokia.
  • So your saying that 3 years ago, they started testing android phones, and those are the android phones that are still being tested today? And that for three years the ceo had no idea of this, and that for three years they tested the same phone. I....just.....what?
  • The phone division is getting sold. Upward curve my ass!
  • Yeah he turned them around and made them worth purchasing. Sure it's a lot more complex than that and many people wished for different outcomes, but from a business perspective he did a good job. 25$mln is a massive chunk of cash, but then it's no different to what others in similar positions make and that's more an issue about our messed up society and this is not the place for such discussions.
     
    What I want to know is where is Elop now? MS sure, but I'm disappointed he's gone silent since the announcement.
  • This would likely constitute a lawsuit.
  • How is it that WPcentral in 99% of the cases, no matter what the case is, takes a defensive position? I can't recall WP central ever agreeing on some criticism as long as what is criticized has some form of connection to Windows Phone.
  • Not sure what you mean here. Chris isn't part of the WPCentral staff, he's the financial analyst for our network and mostly writes on BlackBerry.
  • Exactly, I have seen his well written posts on iMore and A. Central as well.  I saw the Forbes article earlier today and I too had my doubts as to the way the information was being presented.  I think it is clearer now.
  • It's not about this one article, it's about the overall feeling of WPcentral communicating about WP from an artificially narrowed point of view and in a very polished way, even for a fan site.
     
    Look at this post from WMPoweruser for example http://wmpoweruser.com/adduplex-data-suggests-windows-phone-has-a-high-end-traction-problem/ would just never ever happen on WPcentral.
  • You still have not made an actual counter-argument. You're just talking about your "feelings". If the article is wrong, prove your point. Chris doesn't even own a Windows Phone nor does he write for us regularly, yet you're accusing him of an "artificially narrowed point of view", whatever that means. Once again, prove your point. Otherwise your comment literally means nothing and is just libel. And I just wrote an article about the iPhone beating a Lumia 928...so yeah, you're wrong. I have no respect for people who are vague and can't make a coherent argument with specific points or evidence.
  • Get'em!
  • eat them with Chili sauce Daniel! dont let them go!!
     
    and I really dislike when people start complaining and saying something about Chris, because even I know he isnt a windows phone user, yet, people still call him WP fanboy! well I honestly didnt think he would have a windows phone, but you just said I was right about it.
     
    but you know, if it talks good about Windows Phone, you must be a Microsoft paid person, or just an ignorant fanboy.
  • WPCentral has good coverage, but the overall iSheepish editorial nature of the articles is sometimes irritating, sometimes just plain silly. Daniel, you wanted counter-arguments: look up the "MS paradigm" for one prominent example. (Was that your article, btw?)
  • Remind me never to get on your bad side
  • Remind me never to get in an argument with you, because you always obliterate invalid arguments.
  • Weren't you in Tron?
  • Lol
  • No, that was his cousin, User4548
  • Duh, what the heck was I thinking.
  • I'm sure it's just a coincidence.  Really! :)
  • I don't think it was very defensive tbh. He was very factual, and then he went on to disagree with the way elops contract was stitched together.
  • How come in 99% of the cases, people like you can't look at teh facts in an open fashion. Here are teh facts. The board of directors hired and oversaw the hiring of Elop. Elop would have briefed the board about his decision to abandon Symbian and go with WP. The reports show the the chairman of the board negotiated the Microsoft sale, not Elop. These kind of payments are very common. I'm a CPA and have personally seen executives get large payout after a company is taken over. It is so common, that there is an IRS code section that charges a surtax of 20% on these kind of payouts. You can lookup Excess Parachute Payments if you want more info. 
  • Good point.
  • Really like your articles, Chris!
  • This is how it goes...the people up top tell you that you need to take a pay cut because of this and that and then they sit on their ass and make utter messes, then get paid more than the rest of us do in a lifetime to leave. We need a class civil war.
  • just make it to the top if it's that easy
  • And another difference is that when the clock hits 5pm, you go home. The top guys stay in their offices until clock hits 10 or 11pm, sometimes longer. Also, when you get those nice long weekends to stay at home, those guys at the top sit inside their offices till it's already past your bedtime. Vacation? Those guys at the top don't know the definition of that word. There is a reason why people up top get paid so much more. Nobody is stopping you from becoming one of them. It's your decision how high you want to climb that ladder.
  • What a crock of crap!
  • What company in "make believe" is this?
  • This ^^^
  • There ain't nuthin civil about war.
  • This happens all the time. I'm surprised that you're surprised. The board crafts his contract, and board members are usually themselves CEOs of other companies. They look out for each other.
  • 25M is not that much compared to other CEOs I was actaully expecting him to make aournd double or tripple that. Also what most people forget is how much time being a ceo really takes up they have little or no family time and they are personally not motivated by money but by how well the business is doing. Money is a plus on the side for some of them.
    Think about the lenovo ceo that split up his bonus to all his employees working in the factories. Also i am not some CEO or what ever but I am a senior in college currently working full time as a video game programmer. Hard work deserves to be rewarded.
  • Oh please. Elop is one of the worst CEOs ever. He completely destroyed Nokia.
  • I think you forgot to actually make an argument, provide data and make a point.
  • Get'em!
  • I don't agree with pds22008,  but WPC is not debate class and not everybody has to substantiate everything they say. This is the web and WPC is more like a cafe where you get all types...intellecutuals and mouth breathers.
  • You don't have to debate or substantiate your opinion with facts, but we are also free to ignore your comments then.
  • Yep. Pretty much everyone's understanding I would say. Kinda goes without saying, don't you think? 
  • Okay, how about Nokia's revenue still increasing after Elop joined until the unbelievably stupid burning platform memo and the freefall after the move to WP? How about trashing symbian when there were no WP products and then wondering why sales of symbian products went into freefall. How about joining a company with over 40% marketshare in smartphones and then presiding to < 5% now? Need any more?
    And finally how about the move to WP? Nokia would be in far better shape if they had adopted Android or adopted Android and WP.
    The guy is the worst  CEO ever. End of.
  • Tinfoil hats on sale this week.
  • yeah man, he's MS' secret weapon, once the Nokia acquisition is complete he's heading over to Google.
  • As a head of a tanking multi-billion dollar hardware company trying hard to stay relevant in a changing market, I'd say he did remarkably well. Brokered a deal with Microsoft and won the cash backing and thus, saved the company from going belly up. I can't think of anything else that could have been done to pull Nokia out. He's still one of the "don't know where to put it" because Nokia was gaining traction and relevancy and had started making gains but they weren't enough to say a turn around was complete. However, he definitely displayed qualities most executives don't - a clear vision and a direction. He knew the company could be big again and worked very hard to create a set brand and targeted his audience well. Very tough to break into a market like this one but I think he could have actually pulled it off. Obviously, he isn't amazing but he has certainly shown that he has the vision, the attitude and the courage to make hard decisions. A pretty good quality to have, wouldn't you say?
  • Well put
  • I've made my arguments clear: http://forums.wpcentral.com/general-microsoft-news-discussion/240185-elop-greatest-hero-tech-world-has-ever-seen.html#post2114113
     
    Elop is one of the greatest tech leaders ever. He will get paid 25 million to come back to Microsoft to take over from ballmer.
  • How is it that Nokia was a 30 bil company when this dick arrived from MSFT, nokia partnered with them, value falls to 15 bil and they get taken over by the same company.
  • If there was only another similar example in the smartphone world to prove this is not rare...what's that company called, BlackBerry? (BTW, Heins is set to get $50 M for selling BB, so you know, not that bad)
  • How is it so similar. Bb isn't getting taken over by the company it partnered with....
  • BB is being taken over by its biggest shareholder, who just stepped down from the board, but that's not even the point. If you think Nokia was not in trouble before Elop came over, you are kidding yourself. 30B is a number, it was on a downward spiral. BB didn't change CEOs for a while, did that get them anywhere? No, they were also on a downward spiral. These were two companies that let the market pass them by, now one of them is completely done with the consumer sector and another has a chance.
  • The question isn't of not changing CEOS its the one of making the right calls. Bb didn't have an option but to stay with its own os. Its seems so perfectly orchestrated from his part. His attempt to strengthen the feature phone division also failed and he solely concentrated on smart devices which magically gets taken over from his ex now future company and he gains a packet
  • BB had options, they decided to go with their own OS and where did they get them. Elop was the CEO, but there is also a board, I'm not sure how you think he may have orchestrated this without board opposition, or are they all in MS pocket?
    OK, so if we're talking about making the right call, lets see. You're Nokia, your OS isn't doing well at all, you have an option to adopt Android where every other OEM is struggling with the exception of Samsung who pretty much dominates that market and you have MS, who is trying to restart their OS and is offering you money to keep you afloat. Which one do you pick?
  • The way it was orchestrated is quite obvious: the famous/ infamous memo about the burning ship put burnt all the bridges; well orchestrated.... Trashing what you are selling right now when the replacement will not be available for several months...
  • Ok, tell me how this has been a success. They have something called brand value which could have easily seen them gain as much as they did currently if not more. They could have easily made android suit their differentiation if they can put so much into WP.
    The payment part is not what you see it as, It was an agreement of royalties given by MST to ensure WP would be their sole os. They still paid MST the fees per WP which would have never arisen otherwise.it was a lucrative choice at. the time and looked promising Its helps them with feature phones cause its free and they could focus on hardware like they have always and also why have a secret android phone made.
    Bb never had a choice don't know what you're on about, their usp was enterprise solutions and bbm on a native secure OS
  • Sony, motorola, LG, HTC did any of these copanies have any brand value? How did they fair against Samsung?
    Nokia did not have the resources to go up against Samsung, so they chose to be a big fish in the smaller pond, rather than being a footnote in the Android market.
  • Nokia was in the exact same position as BB. They were running their in house Symbian but decided (rather sensibly) that they didn't have the resources to pull a turnaround by themselves. Considering that, WP is a non brainer. BB had a similar option - could have easily adopted Android or WP - it didn't. The two imbeciles in charge decided they could wait 3 years for their OS to arrive and pull a magical turnaround. Both had similar positions but took different routes and that shows. Also, how's a takeover by Microsoft worse than a takeover by FairFax financial? I mean getting bought by an insurance investment fund brokerage firm is better than being acquired by the largest software company on earth with a really deep pocket? Wow. As for finances...Nokia had it amazing. Cash injections, large customer to develop a new industry with (maps/services) and protection from any hostile takeovers. How's that bad? That's a sweet deal to me. Also...by the end of it, due to all these "rebates" Nokia was actually paying Microsoft close to nothing to run WP. You are absolutely delusional if you think BB got it better than Nokia or that Nokia could have done better than it did. Nostalgia and emotions play no part in basic economics.
  • momentum
  • It was a $30b company when he arrived. That number was going down before he even considered coming to Nokia.
  • Yes but he stood to gain the most if he planned it out. What the company did his leadership was like as if he was helping the company he just left
  • Well they were a $120bn company before he took over, they were in freefall when he was hired. Relative to when the first Lumias hit the market, they're flat and trending upward. June 2012 to June 2013 was a 80% increase in stock price.
    So, um, yeah. Not actually that bad.
  • Of which 60% post the MSFT take over talk.
  • Yeah, starting in 2007-08
  • I think what could, perhaps should, be argued is whether the selling of the D&S *division* represents a true “change of control." I would say not, and then Elop would not be entitled to the bonus...
  • Very interesting point...
  • "I don’t think it makes sense for a CEO to make millions of dollars for screwing up. Never, ever should this happen."
     
    One name comes to mind: Leo Apotheker.
  • The company was doing horrible when elop arrived and it wasn't getting any better. Elop made changes to keep the company above water and changes don't happen overnight. It took time to make Nokia profitable, relevant and an important piece to Microsoft soft's success in the mobile market. If Microsoft wouldn't of bought Nokia then Microsoft would be biting their nails hoping Nokia doesn't start making android phones. Elop made Nokia important...
  • Its ok I understand look at the giants there getting paid big bucks to screw up too 38-0 come on man! Pay me millions to throw interceptions
  • Lol @ 520 with no clearblack
  • Man, do I wish I was Stephen Elop right now. I think he's doing a great job. Nobody said it was going to be easy getting back to the top.
  • Think he's been on the right track.
    He and the fabulous Nokia team brought me Lumia 920 so I'm okay with his millions ;)
  • CEO's are paid too much, and not usually controlled or compensated correctly by their Boards. The clearest examples in the cell phone world are the FORMER CEOs of RIM and Nokia. These are they guys who ran their companies into the ground, not their replacements. Once the death notices start to be posted for once great companies, its naturally difficult to attract top talent to the CEO position. In effect you either have to gamble with an unproven executive, or give a more established hand a "heads I win,