Government to look into hefty severance pay packages of CEOs of state-owned companies

Minister: current rules may lead to excessive dismissal compensations

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By Tuomo Pietiläinen
     
      One of the government’s tasks for this autumn is to mull over the reasonableness of the severance pay packages made to the CEOs of state-owned companies.
      Minister of Transport Merja Kyllönen (Left Alliance) insisted on Friday that the compensation schemes be re-evaluated also in this respect.
      In Kyllönen’s view, the present practice can lead to “excessive compensations”.
      Minister of International Development Heidi Hautala (Green League), under whose jurisdiction such ownership steering questions fall, says that the severance payments will be looked into just like the bonus systems and pension benefits.
     
Hautala does not approve, for instance, of the fact that at least two state-owned enterprises, the defence equipment conglomerate Patria and steel manufacturer Outokumpu, are violating the general rules set for bonus schemes.
      The government’s decision in principle with regard to the corporate governance of state-owned enterprises will be drawn up in the near future. This decision is meant to address all the emerged discrepancies.
     
The question of severance payments became a bit of a hot-button issue last week in connection with the sacking of the Finavia CEO Samuli Haapasalo.
      Haapasalo’s notice period salary together with the redundancy payment will amount to no less than EUR 280,000, even though Finavia, which is totally owned by the state, is to all intents and purposes a monopoly.
      Finavia is a service company that for example maintains and develops Finland’s network of 25 commercial airports. Until 2010 Finavia was a state-run enterprise called Ilmailulaitos (the Civil Aviation Administration).
      Other examples of generous severance payments in government monopoly fields include the state-owned sports betting and lottery company Veikkaus’s CEO Risto Nieminen’s comfortable EUR 490,000 and the state-run alcohol retailer Alko’s former CEO Jaakko Uotila’s more than adequate EUR 255,000 severance package.
      In practice, a managing director or a CEO of a company is always paid a redundancy payment in connection with the sacking, so long as he or she has not committed a criminal offence.
      The amount paid is specified in the individual's contract.
     
According to Minister Kyllönen, the compensation paid has to be reasonable and always in correlation with the “nature of the company’s activities”.
      The operational risks are smallest with companies that are totally owned by the state, and which are thus outside the activities of the stock exchange.
      Last year the average dismissal salary paid to a state-owned corporation’s CEO was EUR 339,000. The sacked CEO’s median redundancy payment was EUR 255,000.
      Seen in this light, Haapasalo’s compensation is mid-range, but Nieminen’s was clearly above average.
     

When the exchange-listed companies with some state ownership are included, then the CEO’s severance pay packages grow significantly larger, averaging EUR 452,000.
      The average was increased by the more than 1 million euro compensation schemes of the CEOs of the energy company Fortum, the oil refiners Neste Oil, and the national carrier Finnair.
      This becomes evident when observing that the median dismissal wage of the CEOs of all the 31 state-owned companies was EUR 280,000.
      According to the present instructions, a severance pay package must not exceed the person’s salary for two calendar years.
     
     
Helsingin Sanomat / First published in print 10.9.2011


Previously in HS International Edition:
  Finavia personnel question generous bonuses for top management (7.9.2011)
  Pay and perks for executives of state-owned enterprises under spotlight again (15.8.2011)

TUOMO PIETILÄINEN / Helsingin Sanomat
tuomo.pietilainen@hs.fi