Rewarding failure: blame it on the ex-wife

While Americans are used to paying large bonuses for failure, it’s not as common in Europe. Apparently Helsinki newspapers are alight with the controversy over the $25 million bonus Nokia plans to pay CEO Stephen Elop for halving the company’s market cap.

Elop’s failure has been long in coming. When Nokia announced its Windows strategy in February 2011, I (admittedly) mixed my metaphors:

Nokia CEO (and Microsoft veteran) Stephen Elop had already prepared the troops with his “burning platforms” memo, lambasting his new employer for how it failed to respond to the iPhone and Android challenge.
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Elop has jumped off the burning oil platform into a ship that’s adrift and has a hold filled with water.
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The sign of a troubled company is multiple Hail Mary passes in a row. … Nokia needs to fix its execution rather than throwing more Hail Mary passes than even Doug Flutie ever completed.

Twenty months later, the results were even more obvious:

Still, let’s not put too fine a point on it: Elop’s gamble to bet the company’s future on switching to the Windows Phone platform has been an absolute disaster. … Nokia has been more successful at killing Symbian — by starving new releases — than getting people to buy Windows Phones. In fact, as late as Q2, Nokia was still selling more Symbian than Windows phones.
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[R]ealistic is the advice from former Apple Europe president Jean-Louse Gasée: fire Elop and switch to Android. If Nokia’s board believed in accountability, they’d lower the axe after the end of the Christmas quarter, but more likely they’re going to limp along until they can no longer deny the reality of Elop’s failed platform strategy.

Now the Helsingin Sanomat reports in Finnish and English that Nokia is begging Elop to reduce the bonus, but Elop is blaming his estranged wife for why he can’t (won’t) do so:

Helsingin Sanomat has learned that Risto Siilasmaa, Chairman of the Board of mobile telephone manufacturer Nokia, has held discussions with former CEO Stephen Elop on either cancelling or reducing his bonus of €18.8 million.

In the discussions, Elop has brought up the fact that he has filed for a divorce from his wife. If he were to agree to relinquish his final compensation of €18.8 million during the divorce proceedings, he might still be required to pay half of the value of the bonus to his wife.

Siilasmaa does not want to comment on the matter.

AS CEO OF NOKIA, Elop travelled around the world constantly. His family lives in the United States, in Seattle, Washington.

Elop has an apartment in Helsinki, but most of his time has been spent on work-related travel. His family includes his wife Nancy and their five children.

The HS speculates that Finland might have jurisdiction over the divorce, but that seems unlikely. Instead, Elop filed for divorce Aug. 1 in King County (i.e. Seattle), and Washington State is a community property state, which means (barring other contractual arrangements) Nancy Elop is entitled to 50% of everything her husband earned during their 20+ years of marriage.

So now Elop’s failure as a CEO deserves to be rewarded because of the failure of Elop’s marriage? The one-good-failure-deserves-another warrants recognition for creativity, but not a $25.4 million (or $12.7 million) prize.

Leaks to HS are intended to put the Nokia board in the best light, by comparing Elop to his peer group — CEOs of other failed mobile handset companies:

THE PAYOUT to the CEO is exceptionally large by Finnish corporate standards.

However, compared with the golden parachutes of Nokia's international competitors in similar situations, Elop's bonus is not particularly large.

Motorola Mobility's CEO Sanjay Jha was promised a final bonus of €47 million when Motorola's telephone operations were bought out by Google.

Thorsten Heins, CEO of Research in Motion, which manufactures Blackberry telephones, is set to be paid €41 million if the purchase offer made on Monday by investors is implemented.

Tero Kuittinen of Forbes argues that Nokia’s contract with Elop gave him a powerful incentive to run the company into the ground:

According to changes implemented in 2010, Elop was entitled to immediate share price performance bonus in case of a “change of control” situation… such as selling of Nokia’s handset division. Curiously, his predecessor [Olli-Pekka] Kallasvuo had no such clause in his contract. This adjustment meant that unlike previous CEOs, Elop was facing an instant, massive windfall should the following sequence happen to take place:

• Nokia’s share price drops steeply as the company drifts close to cash flow crisis under Elop.
• Elop sells the company’s handset unit to Microsoft under pressure to raise cash
• The share price rebounds sharply, though remains far below where it was when Elop joined the company.

Should this unlikely chain of events ever occur, Elop would be entitled to an accelerated, $25M payoff. Through some strange coincidence, that very sequence of events actually did happen to take place between 2011-2013. Practically instantly after Elop was handed his contract. Can you imagine how Nokia’s board must have giggled when they realized what had occurred? They had created a strong incentive for the new CEO to drive down the company share price, sell the core business to Microsoft and then collect $25M – and this actually happened!