New guidelines put pressure on government to reduce benefits of present CEOs of state-owned companies

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New guidelines for the granting of incentives and pension agreements to the CEOs of Finnish state-owned companies are to be completed by the Cabinet Committee on Economic Policy in August.
     
As a rule, the new guidelines are to apply to new contracts only, but they are likely to put pressure on the government to reduce the benefits of the present CEOs as well.
      Minister of Defence Jyri Häkämies (Nat. Coalition Party), who is also responsible for matters related to state corporate ownership, specifies that it is possible to negotiate some amendments to the existing contracts.
      The most recent example of such negotiations is from April, when the job benefits of Tapio Kuula, the new CEO of energy company Fortum, were amended to be much weaker than those of his predecessor Mikael Lilius.
      Kuula’s retirement age was raised to 63 and the highest level of his pension benefits are to be paid out only until the pension savings run out.
      On Monday, Häkämies received a report from a working group headed by Markku Pohjola, the former deputy CEO of Nordea, relating to the granting of incentives and pension agreements at companies in which the state holds stock.
      Other members of the working group include chief judge Pekka Merilampi and authorised public accountant Pekka Nikula.
     
The most surprising detail in the report is the proposed possibility of cancelling the agreed remunerations.
      According to the proposal, the boards of state-owned companies would have the right to cancel, amend, or postpone stock option and other incentives, if the circumstances change and the application of the agreed incentive system would harm the company.
      ”I believe that backing for this 'emergency brake' will be found easily. This has to do with economic cycles or changes in economic activity. In other words, when the payments are due the company could be going through a tough period following a number of very good years”, Häkämies noted.
      However, Pohjola says that the amendment of the CEO’s contract is subject to careful consideration, as it is ”an extremely discretionary issue and should be decided upon by the board only”.
     
The ”harm” caused to the company could also be related to the corporate image, according to Pohjola.
      Pekka Merilampi stressed that the proposed cancellation option would be a safety clause that the company and its shareholders could use under very exceptional circumstances.
     
As expected, the working group tasked with drawing up new guidelines would also tighten the pension benefits of the CEOs. The retirement age of the chief executives of state-owned companies would be raised from the currently common 60 years to 63 years.
      Another major change would be that the CEOs’ and other executives’ supplementary pension benefits should be paid out only until the pension savings run out, while the current CEOs can collect very large additional pension benefits for the rest of their life.
      ”Pension benefits must not be seen as an extra bonus that would be paid on top of other incentives”, Häkämies pointed out.
     
The working group also suggests that the CEOs of state-owned listed companies should considerably increase their stake in the company they are working for.
      In fact, the CEOs should make an additional investment of hundreds of thousands of euros in their respective companies, if they want to comply with the request.
      At present only six out of 12 CEOs own the suggested minimum stake, which according to the Cabinet Committee on Economic Policy should be equal to one year’s basic salary.
      In the case of Stora Enso CEO Jouko Karvinen, for example, his ownership of the company - shares to a value of just under EUR 200,000 - falls well short of his annual salary of EUR 974,000.


Previously in HS International Edition:
  CEOs of state-owned companies continue to enjoy big pay hikes (15.6.2009)
  Häkämies wants to "restore discipline" to state-owned companies (1.6.2009)
  Pensions still high for executives in state-owned companies (18.5.2009)
  Government to re-examine incentive programmes for state-owned companies (1.4.2009)

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