Sacked executives do well on generous severance packages

Golden parachutes sharply boost income of former CEOs

Juha Niemelä

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Top executives forced to resign last year have done rather well for themselves. Getting sacked actually led to considerable increases in annual income, compared with what they earned in 2003.
      This year, the severance packages of two CEOs - those of Eero Heliövaara of Pohjola Insurance and Juho Lipsanen of Alma Media - have attracted considerable attention.
      Lipsanen's golden parachute was worth EUR 540,000, while Heliövaara got EUR 420,000, in addition to bonuses and stock options.
      CEOs did well from being sacked last year as well. Helsingin Sanomat examined the earnings of six top executives who lost their positions in 2004, based on information from tax authorities covering the years 2003 and 2004.
      Only one of the executives, Harri Koponen, deputy CEO of TeliaSonera, saw his taxable earnings decline after losing his job - at least on paper. However, soon after leaving TeliaSonera, Koponen moved to Kuwait, where his earnings do not appear in Finnish taxation.
     
The biggest increase in earnings was for Pentti Molander, former CEO of Tammi Publishers, whose income nearly tripled to EUR 600,000.
      Molander says that the sharp rise was a combination of his "pay, performance-based bonus, and the contract". He had no stock options, as the Swedish company Bonnier, which owns Tammi, is not listed on the stock exchange. "I am satisfied with the contract that I negotiated, as is the company", Molander says.
      Molander unexpectedly left Tammi in September 2004, citing disagreements with the board of directors.
      Another sacked executive who saw his earnings increase by more than 100% was Jorma Turunen, CEO of data security company Stonesoft. Turunen was let go in August 2004 because of continued financial losses.
      Turunen had a severance package. The current CEO and board member Ilkka Hiidenheimo said that he "does not remember" the details of the agreement. Turunen himself would not comment on the matter.
      Currently, listed companies are forced by corporate governance rules to disclose information about the terms of employment of their executives. According to Stonesoft's annual report, Hiidenheimo is entitled to a severance package worth six months' pay if he is let go.
      The disclosure rule came into effect last year.
     
Juha Niemelä, former CEO of the paper manufacturer UPM, had also negotiated very good severance terms. His total earnings for 2004 were EUR 1.4 million - the highest of any of the fired executives.
      Niemelä has not disclosed the background of his departure, but it has been linked with the cartel scandal that UPM began to clear up with the help of competition authorities, first in the United States.
      According to a document submitted by UPM to the United States Securities and Exchange Commission, the company will continue to pay Niemelä a salary until the end of August next year - a total of EUR 2.8 million. The golden goodbye is conditional upon Niemelä's full cooperation with the company and with the authorities in the cartel investigation.
     
TeliaSonera states that Harri Koponen got severance pay worth 18 months' salary - EUR 837,000. However, his taxed income was just over EUR 600,000.
      Since the autumn of 2004, Koponen has worked as CEO of the Wataniya telephone company in Kuwait. Koponen confirms that the decline in his taxable income of nearly 40% does not necessarily mean that his real income had gone down.
      Kuwait has no income tax.


Previously in HS International Edition:
  Document reveals strict conditions for severance package for ex-UPM CEO Juha Niemelä (31.5.2005)

Helsingin Sanomat