State-owned companies tight-lipped about executive bonuses

Antero Jännes

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State-owned companies that are not listed on the stock exchange, as well as listed companies in which the state has a stake of less than 50 per cent, tend to be very parsimonious in giving out information on the basis for the bonuses and pay extras granted to their top executives.
     A Helsingin Sanomat investigation reveals that only the alcoholic beverage retail monopoly Alko gives out detailed information on bonus targets for executives and on the importance of the set goals in deciding on how much in bonuses and extras are to be paid.
     Finnish Industry Investment, the peat and bioenergy company VAPO, the Finnish Institute of Public Management (HAUS) and the innovation commercialisation company Licentia are fairly open about their incentive arrangements.
     At the other extreme is the lottery and sports gambling monopoly Veikkaus, which refuses to disclose any information on how it evaluates the performance of its top managers with respect to bonuses that it pays. Olli Sarekoski, head of planning at Veikkaus, says that they are business secrets.
     "We have quite normal criteria for rewarding performance", is all that Sarekoski will say.
     
State-owned companies and companies in which the state has a minority holding began to publish information on pay criteria for their CEOs and other top managers last year at the insistence of the Ministerial Committee on Economic Policy. The companies mail the information to the Ministry of Trade and Industry, which publishes the information on its Internet pages.
     The committee says that incentives must be transparent, and that central information must be made public. Payments to CEOs need to reveal the elements that the bonuses comprise.
     State-owned listed companies have long allowed public access to information on the actual amount that the executives are paid, because the rules of the Helsinki Stock Exchange require that they do so.
     
The pay earned by executives of state-owned companies is public information; Helsingin Sanomat calculated the most important rises and declines in money paid out to the managers. The sharpest increase in earnings in 2005-2006 was for Veikkaus CEO Risto Nieminen, whose pay hike of 38.6 per cent brought him EUR 304,000.
     Nieminen himself did not return a call inquiring on the payment system. Sarekoski, meanwhile, would only reveal that the boost party resulted from a performance bonus, and partly from a rise in basic pay.
     "An incentive worth about 30 per cent came into effect for the management team", explained Sarekoski, who is a member of the team himself.
     
Under a new bonus system implemented by Veikkaus a couple of years ago, members of the management team are allowed bonuses of up to 37.5 per cent of their annual pay. Last year, the maximum bonus was 30 per cent.
     However, there was no boost in bonuses for rank-and-file employees of Veikkaus.
     "In the background is a change in strategy that was implemented at Veikkaus in 2004. Also changed at that time were the incentive systems, which were altered so that those with a greater influence on how targets are met stand to gain more. It is quite normal to want to encourage as much commitment as possible among key figures in the company", Sarekoski says.
     
Alko has also made changes to its executive incentive system. Until a couple of years ago the monopoly rewarded its executives for growth in the sale of alcohol, which brought criticism from government ministries, state auditors, and the company's administrative council voiced criticism.
     Unlike Veikkaus, Alko has given out information about its incentive system to the public. For instance, the performance of Alko CEO Jaakko Uotila is measured on the basis of the implementation of the company's personnel and training strategy, and on the level of public acceptance and customer satisfaction in the company.


Previously in HS International Edition:
  Political controversy over Fortum stock option perks escalates (29.9.2005)

Helsingin Sanomat