Parliamentary committee wants to prevent oversized bonuses

The Commerce Committee of the Finnish Parliament wants to eliminate the types of incentive programmes in state-owned enterprises that could lead to vast windfall profits for executives.
      On Tuesday the committee was preparing a statement on the stock option plan in force for the top management of the energy company Fortum, which is bringing considerable monetary benefits to about 350 managers and key figures in the company during the 2004-2006 period.
      A final version of the statement is expected on Friday.
     
In the view of the members of the committee, systems that lead to the multiplication many times over of annual earnings "cannot be cost-effective or appropriate even from a business point of view".
      The committee also feels that "the risk of excessive rewards" can be averted by setting limits on the payment of profits from shares and stock options granted as incentives.
      The monetary value of the Fortum stock option systems was seen as "significantly large" compared with the managers’ fixed salaries and other economic benefits.
      In the view of the committee, guidelines need to be set to prevent the paying out of excessive benefits, even though it is not possible to give a clear definition on what constitutes an "unreasonable benefit".
     
While it recommended measures to avert such excessive executive perks, it did not have any concrete proposals on how the Fortum stock option profits might be cut, noting that such a move would be legally problematic. However, it notes that it might be possible to make changes with respect to bonuses that have not yet been registered.
      The committee feels that before taking measures to impose moderation, the idea of what is considered "moderate" needs to be defined in a concrete and neutral manner.
      The Commerce Committee also notes that this is technically and legally difficult, and that there are no guarantees of the final result. Therefore, the committee tosses the ball to Fortum’s board of directors and its shareholders.
     
The Commerce Committee did not find fault with the process that led to the establishment of the stock option programme. In the committee’s view, the options have been granted in a legally irreproachable manner according to government policy at the time.
      The committee did not take a stand on the role that Fortum’s management played in the sharp rise of the company’s share prices, but notes that "strategically correct decisions" during the present decade have had an effect.


Previously in HS International Edition:
  Fortum Board has powers to alter stock options procedures (20.10.2005)
  Fortum management to keep stock options; no action in Parliament (14.10.2005)
  Intense debate in Parliament over Fortum stock options during question time (30.9.2005)
  Political controversy over Fortum stock option perks escalates (29.9.2005)
  State-owned Fortum's stock option incentives worth half a billion euros (23.9.2005)