Sacked executives get millions in severance benefits

HS examines corporate executive pay for 2005 and 2006

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Large Finnish listed corporations offer lavish benefits to executives who are sacked, who retire, or who change positions within the company. A comparison of earnings by top executives in 2005 and 2006, made by Helsingin Sanomat, shows that four executives who were terminated, or whose tasks were altered in 2006 were among those sharply increased earnings in 2006 compared with the previous year.
      Bonuses and payments are generally paid out without explanation to shareholders. Not even the poor economic result of a company need be much of an impediment to generous golden handshakes. One of the biggest beneficiaries last year was former Perlos CEO Isto Hantila.
      Helsingin Sanomat compared changes in the pay and other benefits of CEOs from 2005 through 2006. Income from company shares and stock options handed out as incentives were not taken into account.
     
The most generous retirement gift was for Pekka Ketonen, CEO of Vaisala late last year. Ketonen's pay and other benefits rose from EUR 250,000 in 2005 to EUR 693,000 last year, when normal bonuses and payments linked with the company's stock incentives were paid out.
      Ketonen did not sell his shares, and will be able to cash them in during his retirement.
      When the EUR 74,000 paid to the new CEO Kjell Forsen are included, Vaisala's costs on pay for its CEOs rose 207 per cent in 2006.
     
The most unexpected beneficiary of executive severance bonuses was Isto Hantila, the former CEO of IT subcontractor Perlos, which is shutting down its operations in Finland. The company has announced last year that it will let go its remaining 1,100 employees in North Karelia, where its operations have suffered serious losses.
      Isto Hantila, who was let go at the end of last year, was nevertheless generously rewarded. According to the Perlos annual report, Hantila got EUR 413,000 in salary and other payments, in addition to EUR 160,000 in severance pay and a bonus of about EUR 160,000 for 2006.
      In addition Hantila will be allowed to keep the 180,000 stock options that were granted to him as an incentive, even though he is leaving the company. The practice is not unique: even the state-owned Fortum has allowed its executives to keep millions in stock options as a severance benefit.
      However, rewarding a failed executive might have a hollow ring to an ordinary worker who has been laid off. The Perlos employees who are losing their jobs will have to make due with severance benefits ranging from EUR 2,900 to EUR 11,900, in addition to pay for the period of notice.
     
Benefits can also be generous for executives who leave voluntarily. Rabbe Klemets, former CEO of Raisio, saw a 41 per cent boost in pay and benefits from the previous year, with the total rising to about EUR 640,000.
      The biggest going-away present went to Jaakko Rauramo, chairman of the Board of SanomaWSOY, who scaled down his commitment from a full time to a part time position at the end of last year. Rauramo's pay and benefits last year rose 82 per cent from the 2005 level, by EUR 768,000.
      Rauramo's total earnings in 2006 were EUR 1.7 million, which includes "one-off payments linked with the end of employment".
     
Whereas parting executives received lavish severance benefits, their successors had to make due with considerably smaller paychecks than their predecessors. Finnair's Jukka Heinonen, YIT's Hannu Leinonen and Nokia's Olli-Pekka Kallasvuo got starting pay that is between 40 and 50 per cent lower than that of those they replaced.
      In this way, the owners of the company want to give the newcomers an incentive to earn pay rises, even if shares and stock options do not yield high pay.


Previously in HS International Edition:
  Perlos factories to shut down by September (6.3.2007)
  Stock option income of corporate executives rises again (2.11.2006)
  Fortum execs maintain strong foothold at top of income list (2.11.2005)

Helsingin Sanomat