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What’s with Stephen Elop’s getting millions for what many consider to be a failure?

Today it seems everywhere you turn in the financial media, there is a story about how Nokia’s chairman screwed up in disclosing information about Stephen Elop’s bonus package to the media. Some of the reporting on it is a bit wonky, so I thought I’d clear things up.

Long story short, Nokia’s chairman was initially quoted as saying Elop’s contract was essentially the same as that of the prior CEO, Olli-Pekka Kallasvuo. When a Finnish newspaper, “Helsingin Sanomat”, dug into his employment contract, which is published to the SEC website, they discovered one important major difference. Elop stands to have his stock compensation vested in an accelerated manner should he resign following a change of control. The prior Finnish CEO didn’t have this clause. The difference amounts to about $25 million, according to various other folks who did the math (I didn’t, and I’m assuming their math is correct).

People love to complain about these things. A Forbes article even went so far as to say that Elop gets paid specifically because he managed to get the stock to go down, and then sharply up again on a takeover bid from Microsoft. The Forbes piece made it seem like this roller coaster action was a requirement to trigger the bonus.

That’s not true. Here’s what is true:

In the US, it’s quite common for executives to be awarded stock as part of their compensation. Sometimes the stock is a stock option, with a strike price, meaning that it has no value if the stock drops below a certain value. But other times, and it looks like this is increasingly common, executives are paid in restricted stock units. This stock is granted to the executive according to a schedule. They’re being given part of their bonus in actual stock, not a stock option, so it always has value even if the stock drops a lot.

The best way for a CEO to make a ton of cash in this situation is to actually make the company more valuable. The higher the share price goes, the more money the CEO makes, which is reasonable. That’s the idea behind the compensation scheme. I can assure you that Stephen Elop did not have some weird arrangement that caused him to make more money by Nokia’s failure versus its success.

But unfortunately, CEOs with accelerated stock grant “change of control” clauses in their contracts will also make a lot of money (less, but still a lot) when they sell the company. So in Nokia’s case the stock price dropped tremendously until Microsoft put in a bid. When Nokia accepted the bid and Elop stepped down this was enough to trigger an accelerated bonus.


Nokia's stock for the last 12 months (Source: MSN Money)

For most of us, we look at the bonus ($25 million) and we think it’s totally insane. But it’s still a lot less money than he would have made had he successfully turned the company around.

I think executives need clauses that protect them against unemployment in the event of a change of control. But boards of directors, in my opinion, are not exercising enough thought in constructing these executive employment contracts. Elop isn’t losing his job. He’s going to be the head of Microsoft’s handset business. He’ll probably wind up with another sweetheart executive compensation plan through Microsoft. That’s not how this is supposed to work.

I also think boards have gone too far in using stock grants versus stock options. I don’t think it makes sense for a CEO to make millions of dollars for screwing up. Never, ever should this happen.

So to wrap up, yes, the Nokia chairman screwed up when talking about Elop’s contract in the press last Friday. But the contract that Elop has is not unusual, and it certainly did not reward Elop specifically for causing the stock to drop, be taken over, and go back up again (in that specific order). It rewarded him for the sale of the company, but much less than it would have rewarded him had he successfully fixed Nokia. And finally, I think boards of directors should revisit how they setup executive compensation contracts. No executive should ever be handed millions of dollars for a screw up.

By the way, Thorsten Heins of BlackBerry is set to take home a huge chunk of change for a similar screw up should Fairfax succeed in taking the company private and decide to show him the door. When and if that happens, expect to see more stories about this all over again.

(Chris Umiastowski is a contributing financial writer to the Mobile Nations network. You can see the rest of his posts here at AndroidCentraliMore and CrackBerry.)

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Comments

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pmich says:

Still think no CEO is worth 25M regardless....
 
By the way,...another great article Umi

eshy says:

That's like saying no athelete or actor is worth millions. If Elop was able to make a lot of money for the share holders, he would be worth the even bigger bonus he would have recieved. The problem here is that the stock is still lower than it was when he took over.
They should have added a simple clause that requires the stock price to be above or at least close to the stock price NOK was at when he took over

anseio says:

The CEO of AT&T Wireless oversaw the company from $29/share down to $4/share in less than 18mths. He sold the company off to Cingular and left with a $21m golden parachute; a parachute that was made 1mth before they put the company up for sale.
 
There is no value and creating value. There is only reward for making money. :(

iamoniwaban says:

Umm actors and athletes are not worth millions....weird

trincowski says:

"actors and athletes are not worth millions....weird"

 

I dont know where you live... but the best Portuguese football player is definitely worth millions: 

 

"According to "Football Finance," Real Madrid player and captain of the Portugal team, Cristiano Ronaldo, receives €1.083 million per month, or 13 million euros per year. In USD that is $16,222,700 a year. This is not counting the money he gets from sponsorships, appearances and advertising.  It has also been reported that he makes around $3.6 million in advertising."

 

Also, the best stricker from my home team was transfered to AS Monaco last year. Again, by millions!

 

"Falcao's transfer fee was €40 million with the fee potentially rising by €10 million based on performance-based clauses, making him the most expensive player in the club's history."

 

The two midfielders were also transfered to Monaco:

 

"FC Porto has reached an agreement with Monaco for the definite transfer of players João Moutinho and James Rodríguez. To assure the economic and sporting rights of both athletes, Monaco will be paying 70 Million Euros (45 for James and 25 for Moutinho), in what is now the biggest business in history of Portuguese football."

 

These are just small examples, as FC Porto is not even a big shark in European Football.

So... how can you say athletes are not worth millions!?

iamoniwaban says:

You really want to get into this? With starving children in your neighborhood, these guys deserves to make that kind of money?

trincowski says:

I don't set the prices... I'm just observing facts.

eshy says:

They're worth millions because they bring in a lot more. That's how business works. If people didn't want to watch sports or movies, they wouldn't buy tickets, jerseys or watch it on TV and the money will go away. That's why they deserve to make that money.
It's also why a CEO gets incentives like Elop did. It's really up to the board to decide what their goal is and structure that contract approprietly (in Elop's case it looks like they blew it)
The point is, if a CEO can take a company to new heights, he's worth the money. for Apple investors, getting Steve Jobs back to Apple was worth a lot more than they paid him, there are many other examples of CEOs who saved companies

rfrapp says:

No athletes are worth millions. They're all overpaid

npoe says:

I agree and the can be said about actors and basically about most high end jobs.

Stephen Elop, nokia killer. I used to like this bi*ch :(

tampacoder says:

You are worth whatever someone is willing to pay.

iamoniwaban says:

Cool...i am worth 12 gagillion dollars.

kuhio3 says:

Only if someone is willing to pay you that much...so when someone does...let me know....until then i dont think you are worth quite that much...LOL

iamoniwaban says:

But I am willing to pay myself that much...no one said it can't be their self who is willing....

ymcpa says:

Fine. Let's amend that to willing and able.

kuhio3 says:

you would have to have enough money to pay yourself to say that you are worth that amount of money. If you have that amount of money and are willing to pay yourself, knock yourself out. However if you don't have that much money and you cant find someone to pay you that much, you cant be worth it..although you can feel as though you are worth it which in many cases is woth more than any arbitrary number that can be placed on you... your self worth is far more important !!

Kellzea says:

I don't think you get it, no one is objectively worth £25 million, but if i said to you, "hey ill pay you £25 million to do this job" are you saying you would turn it down. No, of course you wouldn't. Therefore, everyone is worth whatever price someone will pay.

Bob Shiska says:

So a CEO that increases profit margins by 0.1% for a $25bn company isn't worth it?

redeyss says:

The CEO types often die young, partially from life-style and stress, and partially from the type-a personality gogogo mentality. I work for one and all his executive friends are dying and he's not far behind, in his early 70s. So there is a price to pay.

bobaloo says:

I think this arrangement is less of a reward for bad behavior than it is a protection from the risks associated with jumping into the vortex of a struggling company mid-crisis and grabbing the reins.

markdotinc says:

We are really in no position to dictate what someone is worth; that is determined by, essentially, the talent market-its just economics. Regardless, the fact of the matter is that executives get paid obscene amounts independent of performance; that can be hard to swallow sometimes.

Jay2pt0 says:

Thorsten Heins gets $50 million if blackberry sells. This isn't that uncommon. Like at Leo Apotheker.

In Limbo says:

Reading this article makes me truly wish that companies were in it truly "for the product". At the end of the day -- as with most things -- it's all about the money.
Ah well. I still love Nokia.

Akbar Hashmi says:

same here
still dont wanna accept the fact thats nokia wont make another phone
probably the saddest moment in my life when the deal gets through
 
:"(

dakranii says:

The saddest moment in your life is when a phone manufacturer stops making phones?

Here no one i serious, dont get it that way...

Bob Shiska says:

I don't. A company that's in it "for the product" ends up being misguided and making things like The Homer. By focusing on money, they focus on what sells, and while not being perfect results in better products than would result if all they cared about was the product.

In Limbo says:

I can't agree with you completely there. Just look at Dre Beats vs. Grado's. Who sells more/profits more? But more importantly, who makes the better product at the end of the day?
But hey, these are headphones. Just saying though, some companies are still led by people concerned more about what they make than what they make ($).

markdotinc says:

That's not fair at all. Things are priced based on the value they provide for consumers. Brands like Apple and Monster have demonstrated it's not just quality that increases value, but the experience and projected image of owning the product-- by that token, Beats headphones are excellent devices because they continue to make people extremely happy.

michail71 says:

It has to be that way.  They are in it to to protect their investors investments, which can include retimrent and pension funds.

mixtnet says:

Public companies have to be that way. When you are privately held you can focus on delivering a better product or service because you don't have to please the market. That's why you see Dell delivering a better lineup now that they are private.

ymcpa says:

Of course it's for the money. Companies are formed so that investors can invest their money in a venture that will eventually return that capital plus a return on their investment. No one starts a company because they love you. They start it because they see an opportunity that is unmet that can earn them money.

markdotinc says:

I expect Dell to make some more high-risk, high-reward moves in attempt to revitalize their position in the markets. That does not, however, mean they won't strike out hard before they hit the proverbial jackpot.

Jack Larson1 says:

"No one starts a company because they love you."

:D lol

CommonBlob says:

My opinion, but if it wasn't for elop, Nokia would be even further in trouble. They are on an upwards curve now.

4Tiles says:

Without Elop, Nokia would be another Blackberry, Motorola, Palm or HTC. Today millions of Android fans plead and cry for a Lumia, you don't hear them crying for a Blackberry. Elop kept the brand and products valuable and attractive to consumers with devices featuring cutting edge innovation in attactive designs.
 
It's also kind of hard to blame the guy for not making Nokia extremely profitable when every company in the phone biz not named Samsung or Apple is bleeding money and dropping like flies. Relative to the non-Samsung/Apple phone makers Nokia is doing great.  

wpguy says:

> Today millions of Android fans plead and cry for a Lumia, you don't hear them crying for a Blackberry.
Blackberry even went through all the trouble to make Android apps run on their devices, and that obviously didn't save them. So for all those Android fans crying for a Lumia, they might have gotten a phone or two, but the company would have tanked a long time ago without Microsoft bailing them out.

Jack Larson1 says:

He made it stable at least

Did you know nokia was testing android lumias? Microsoft had Elop a mission in exchange of lots and lots and lots of sweet money...

Kellzea says:

Are you trying to say that elop was somehow unaware of the android testing? That "Nokia" did it without his knowledge?

All that started when Elop wasnt at nokia yet. Nokia was losing share and they had to think of a solution, and one of the options was android. So if you search in Google, you will find out that nokia is still assembling lots of android lumias that NOW will never be officially released. :(

As i say; i dont vuy a WP, I buy a Nokia.

Kellzea says:

So your saying that 3 years ago, they started testing android phones, and those are the android phones that are still being tested today? And that for three years the ceo had no idea of this, and that for three years they tested the same phone.

I....just.....what?

The phone division is getting sold. Upward curve my ass!

he_shark says:

Yeah he turned them around and made them worth purchasing. Sure it's a lot more complex than that and many people wished for different outcomes, but from a business perspective he did a good job. 25$mln is a massive chunk of cash, but then it's no different to what others in similar positions make and that's more an issue about our messed up society and this is not the place for such discussions.
 
What I want to know is where is Elop now? MS sure, but I'm disappointed he's gone silent since the announcement.

travisonfire says:

This would likely constitute a lawsuit.

user4545 says:

How is it that WPcentral in 99% of the cases, no matter what the case is, takes a defensive position? I can't recall WP central ever agreeing on some criticism as long as what is criticized has some form of connection to Windows Phone.

Not sure what you mean here. Chris isn't part of the WPCentral staff, he's the financial analyst for our network and mostly writes on BlackBerry.

dc9super80 says:

Exactly, I have seen his well written posts on iMore and A. Central as well.  I saw the Forbes article earlier today and I too had my doubts as to the way the information was being presented.  I think it is clearer now.

user4545 says:

It's not about this one article, it's about the overall feeling of WPcentral communicating about WP from an artificially narrowed point of view and in a very polished way, even for a fan site.
 
Look at this post from WMPoweruser for example http://wmpoweruser.com/adduplex-data-suggests-windows-phone-has-a-high-end-traction-problem/ would just never ever happen on WPcentral.

You still have not made an actual counter-argument. You're just talking about your "feelings". If the article is wrong, prove your point.

Chris doesn't even own a Windows Phone nor does he write for us regularly, yet you're accusing him of an "artificially narrowed point of view", whatever that means. Once again, prove your point. Otherwise your comment literally means nothing and is just libel.

And I just wrote an article about the iPhone beating a Lumia 928...so yeah, you're wrong.

I have no respect for people who are vague and can't make a coherent argument with specific points or evidence.

_Emi_ says:

eat them with Chili sauce Daniel! dont let them go!!
 
and I really dislike when people start complaining and saying something about Chris, because even I know he isnt a windows phone user, yet, people still call him WP fanboy! well I honestly didnt think he would have a windows phone, but you just said I was right about it.
 
but you know, if it talks good about Windows Phone, you must be a Microsoft paid person, or just an ignorant fanboy.

Appmek says:

WPCentral has good coverage, but the overall iSheepish editorial nature of the articles is sometimes irritating, sometimes just plain silly. Daniel, you wanted counter-arguments: look up the "MS paradigm" for one prominent example. (Was that your article, btw?)

Remind me never to get on your bad side

Jack Larson1 says:

Remind me never to get in an argument with you, because you always obliterate invalid arguments.

In Limbo says:

Weren't you in Tron?

walter1832 says:

No, that was his cousin, User4548

In Limbo says:

Duh, what the heck was I thinking.

tgr42 says:

I'm sure it's just a coincidence.  Really! :)

Nekzar says:

I don't think it was very defensive tbh. He was very factual, and then he went on to disagree with the way elops contract was stitched together.

ymcpa says:

How come in 99% of the cases, people like you can't look at teh facts in an open fashion. Here are teh facts. The board of directors hired and oversaw the hiring of Elop. Elop would have briefed the board about his decision to abandon Symbian and go with WP. The reports show the the chairman of the board negotiated the Microsoft sale, not Elop. These kind of payments are very common. I'm a CPA and have personally seen executives get large payout after a company is taken over. It is so common, that there is an IRS code section that charges a surtax of 20% on these kind of payouts. You can lookup Excess Parachute Payments if you want more info. 

Really like your articles, Chris!

This is how it goes...the people up top tell you that you need to take a pay cut because of this and that and then they sit on their ass and make utter messes, then get paid more than the rest of us do in a lifetime to leave. We need a class civil war.

borasar says:

just make it to the top if it's that easy

erzhik says:

And another difference is that when the clock hits 5pm, you go home. The top guys stay in their offices until clock hits 10 or 11pm, sometimes longer. Also, when you get those nice long weekends to stay at home, those guys at the top sit inside their offices till it's already past your bedtime. Vacation? Those guys at the top don't know the definition of that word. There is a reason why people up top get paid so much more. Nobody is stopping you from becoming one of them. It's your decision how high you want to climb that ladder.

Rishicash says:

What a crock of crap!

What company in "make believe" is this?

walter1832 says:

There ain't nuthin civil about war.

lippidp says:

This happens all the time. I'm surprised that you're surprised. The board crafts his contract, and board members are usually themselves CEOs of other companies. They look out for each other.

25M is not that much compared to other CEOs I was actaully expecting him to make aournd double or tripple that. Also what most people forget is how much time being a ceo really takes up they have little or no family time and they are personally not motivated by money but by how well the business is doing. Money is a plus on the side for some of them.
Think about the lenovo ceo that split up his bonus to all his employees working in the factories. Also i am not some CEO or what ever but I am a senior in college currently working full time as a video game programmer. Hard work deserves to be rewarded.

pds2208 says:

Oh please. Elop is one of the worst CEOs ever. He completely destroyed Nokia.

I think you forgot to actually make an argument, provide data and make a point.

Rishicash says:

I don't agree with pds22008,  but WPC is not debate class and not everybody has to substantiate everything they say. This is the web and WPC is more like a cafe where you get all types...intellecutuals and mouth breathers.

ymcpa says:

You don't have to debate or substantiate your opinion with facts, but we are also free to ignore your comments then.

Rishicash says:

Yep. Pretty much everyone's understanding I would say. Kinda goes without saying, don't you think? 

pds2208 says:

Okay, how about Nokia's revenue still increasing after Elop joined until the unbelievably stupid burning platform memo and the freefall after the move to WP? How about trashing symbian when there were no WP products and then wondering why sales of symbian products went into freefall. How about joining a company with over 40% marketshare in smartphones and then presiding to < 5% now? Need any more?
And finally how about the move to WP? Nokia would be in far better shape if they had adopted Android or adopted Android and WP.
The guy is the worst  CEO ever. End of.

erzhik says:

Tinfoil hats on sale this week.

borasar says:

yeah man, he's MS' secret weapon, once the Nokia acquisition is complete he's heading over to Google.

pulkit10 says:

As a head of a tanking multi-billion dollar hardware company trying hard to stay relevant in a changing market, I'd say he did remarkably well. Brokered a deal with Microsoft and won the cash backing and thus, saved the company from going belly up. I can't think of anything else that could have been done to pull Nokia out.

He's still one of the "don't know where to put it" because Nokia was gaining traction and relevancy and had started making gains but they weren't enough to say a turn around was complete. However, he definitely displayed qualities most executives don't - a clear vision and a direction. He knew the company could be big again and worked very hard to create a set brand and targeted his audience well. Very tough to break into a market like this one but I think he could have actually pulled it off.

Obviously, he isn't amazing but he has certainly shown that he has the vision, the attitude and the courage to make hard decisions. A pretty good quality to have, wouldn't you say?

the_tyrant says:

I've made my arguments clear: http://forums.wpcentral.com/general-microsoft-news-discussion/240185-elop-greatest-hero-tech-world-has-ever-seen.html#post2114113
 
Elop is one of the greatest tech leaders ever. He will get paid 25 million to come back to Microsoft to take over from ballmer.

AML1 says:

How is it that Nokia was a 30 bil company when this dick arrived from MSFT, nokia partnered with them, value falls to 15 bil and they get taken over by the same company.

If there was only another similar example in the smartphone world to prove this is not rare...what's that company called, BlackBerry? (BTW, Heins is set to get $50 M for selling BB, so you know, not that bad)

AML1 says:

How is it so similar. Bb isn't getting taken over by the company it partnered with....

borasar says:

BB is being taken over by its biggest shareholder, who just stepped down from the board, but that's not even the point. If you think Nokia was not in trouble before Elop came over, you are kidding yourself. 30B is a number, it was on a downward spiral. BB didn't change CEOs for a while, did that get them anywhere? No, they were also on a downward spiral. These were two companies that let the market pass them by, now one of them is completely done with the consumer sector and another has a chance.

AML1 says:

The question isn't of not changing CEOS its the one of making the right calls. Bb didn't have an option but to stay with its own os. Its seems so perfectly orchestrated from his part. His attempt to strengthen the feature phone division also failed and he solely concentrated on smart devices which magically gets taken over from his ex now future company and he gains a packet

borasar says:

BB had options, they decided to go with their own OS and where did they get them. Elop was the CEO, but there is also a board, I'm not sure how you think he may have orchestrated this without board opposition, or are they all in MS pocket?
OK, so if we're talking about making the right call, lets see. You're Nokia, your OS isn't doing well at all, you have an option to adopt Android where every other OEM is struggling with the exception of Samsung who pretty much dominates that market and you have MS, who is trying to restart their OS and is offering you money to keep you afloat. Which one do you pick?

Fritzly says:

The way it was orchestrated is quite obvious: the famous/ infamous memo about the burning ship put burnt all the bridges; well orchestrated.... Trashing what you are selling right now when the replacement will not be available for several months...

AML1 says:

Ok, tell me how this has been a success. They have something called brand value which could have easily seen them gain as much as they did currently if not more. They could have easily made android suit their differentiation if they can put so much into WP.
The payment part is not what you see it as, It was an agreement of royalties given by MST to ensure WP would be their sole os. They still paid MST the fees per WP which would have never arisen otherwise.it was a lucrative choice at. the time and looked promising Its helps them with feature phones cause its free and they could focus on hardware like they have always and also why have a secret android phone made.
Bb never had a choice don't know what you're on about, their usp was enterprise solutions and bbm on a native secure OS

borasar says:

Sony, motorola, LG, HTC did any of these copanies have any brand value? How did they fair against Samsung?
Nokia did not have the resources to go up against Samsung, so they chose to be a big fish in the smaller pond, rather than being a footnote in the Android market.

pulkit10 says:

Nokia was in the exact same position as BB. They were running their in house Symbian but decided (rather sensibly) that they didn't have the resources to pull a turnaround by themselves. Considering that, WP is a non brainer. BB had a similar option - could have easily adopted Android or WP - it didn't. The two imbeciles in charge decided they could wait 3 years for their OS to arrive and pull a magical turnaround. Both had similar positions but took different routes and that shows.

Also, how's a takeover by Microsoft worse than a takeover by FairFax financial? I mean getting bought by an insurance investment fund brokerage firm is better than being acquired by the largest software company on earth with a really deep pocket? Wow.

As for finances...Nokia had it amazing. Cash injections, large customer to develop a new industry with (maps/services) and protection from any hostile takeovers. How's that bad? That's a sweet deal to me. Also...by the end of it, due to all these "rebates" Nokia was actually paying Microsoft close to nothing to run WP.

You are absolutely delusional if you think BB got it better than Nokia or that Nokia could have done better than it did. Nostalgia and emotions play no part in basic economics.

erzhik says:

It was a $30b company when he arrived. That number was going down before he even considered coming to Nokia.

AML1 says:

Yes but he stood to gain the most if he planned it out. What the company did his leadership was like as if he was helping the company he just left

Bob Shiska says:

Well they were a $120bn company before he took over, they were in freefall when he was hired. Relative to when the first Lumias hit the market, they're flat and trending upward. June 2012 to June 2013 was a 80% increase in stock price.
So, um, yeah. Not actually that bad.

AML1 says:

Of which 60% post the MSFT take over talk.

OMG55 says:

Yeah, starting in 2007-08

riffraffy says:

I think what could, perhaps should, be argued is whether the selling of the D&S *division* represents a true “change of control." I would say not, and then Elop would not be entitled to the bonus...

mixtnet says:

Very interesting point...

KoreyTM says:

"I don’t think it makes sense for a CEO to make millions of dollars for screwing up. Never, ever should this happen."
 
One name comes to mind: Leo Apotheker.

The company was doing horrible when elop arrived and it wasn't getting any better. Elop made changes to keep the company above water and changes don't happen overnight. It took time to make Nokia profitable, relevant and an important piece to Microsoft soft's success in the mobile market. If Microsoft wouldn't of bought Nokia then Microsoft would be biting their nails hoping Nokia doesn't start making android phones. Elop made Nokia important...

paulxxwall says:

Its ok I understand look at the giants there getting paid big bucks to screw up too 38-0 come on man! Pay me millions to throw interceptions

Aryan Angel says:

Lol @ 520 with no clearblack

J Papi says:

Man, do I wish I was Stephen Elop right now. I think he's doing a great job. Nobody said it was going to be easy getting back to the top.

Xaphoon148 says:

Think he's been on the right track.
He and the fabulous Nokia team brought me Lumia 920 so I'm okay with his millions ;)

MadSci2 says:

CEO's are paid too much, and not usually controlled or compensated correctly by their Boards. The clearest examples in the cell phone world are the FORMER CEOs of RIM and Nokia. These are they guys who ran their companies into the ground, not their replacements. Once the death notices start to be posted for once great companies, its naturally difficult to attract top talent to the CEO position. In effect you either have to gamble with an unproven executive, or give a more established hand a "heads I win, tales you lose" deal.
Look at it this way. Ni one could be certain exactly what the best course or outcome would have been for RIM or Nokia. We all have opinions, but the path forward was uncertain. Setting up a traditional compensation plan would inevitably put the new CEO in a conflict of interest regarding one option vs another. That makes any decision they make subject to charges of unethical conduct. I wouldn't risk my hard won reputation that way. Would you? So these structures ensure that no matter what the CEO and/or the Board think emerges as the best course the new CEO gets treated essentially the same way. The result is the CEO should always be incentivized to act in the Company's interest, and fewer Shareholder suspicions or lawsuits.

Frankly, the dismal state of Journalism these days is showing in the lack of clear acknowledgment that these deal terms are completely normal and in the shareholder's interest.

Elop did not run Nokia to the ground.

Great article, WPCentral. I appreciate you guys brought in an outside-perspective from your traditional team to write this article. It's so easy to mince words and not really evaluate how "things work" when so many people are so attached to brand names nowadays. You guys could've opted to create Yet-Another-ClickBait-Article, but you didn't. As a reader, thank you for that.

No problem.I know my limits in knowledge and frankly this was out of my league--I just know the Forbes article sounded a little too hyperbolic. Chris though...he knows his stuff and more importantly, knows how to make it accessible.

Fritzly says:

Actually I am still wondering when this "change of control" happened and consequentially triggered the bonus. MS bought a division of Npkia and not the company itself.

Thanks for keeping us updated Daniel by bringing someone with a better perspective on things & that can break it down to us common folk.

Thanks for not ignoring my email as well (shows you guys care about the WP community)

blushrts717 says:

Sorry, execs that make millions of dollars don't need any protection from unemployment.

uselessrobot says:

I'm struggling to see how Stephen Elop failed to save the company. Meego and Symbian were a lost cause and they clearly didn't have the resources to turn them into a legitimate competitor. Only the naive could believe that Nokia would have been helped by going with Android. They would have ended up an also-run, struggling to compete with Samsung, LG, Motorola (Google), HTC, Sony and the multitude of other companies producing Android handsets. Brightly colored phones alone wouldn't have done much.

So what option was left but to go with Windows Phone? Sure, the American retail market in particular is aligned against anything but Apple and Samsung. However, the decision thrust Nokia to the forefront of the tech press and enabled them to offer truly distinctive phones. Whether Nokia had the resources to survive this slow accumulation of market share is another story. But regardless, the company's sale to Microsoft is arguably a good thing, regardless of media spin. Where was all the gnashing of teeth when Google bought up a struggling Motorola?

trincowski says:

I fully agree. In addition to what you say about Android, Nokia would have taken a bigger risk on their mapping division, had they decided to join Google's OS.

And for all of you who accuse Elop of killing Symbian, do yourselves a favour before saying any further idiocy:

Open Excel, input Symbian's market share from 2007 to 2012, quarter by quarter; mark the dates September 2010 and February 2011 (when Elop arrived and when the infamous memo was leaked) and ask yourselves if it is fair to blame Elop for Symbian's downfall.

AML1 says:

His motive is very clear and product differentiation is just an escape route. He trimmed the company, got rid of what was not required, created a nice gift wrapped package and shipped it personally to MSFT

CX1 says:

Quite typical CEO payout. Most are just as infuriating.
 

Nakazul says:

While its a lot of money in my world, its nothing special.
Since we will never truly know I guess there is only 2 ways of looking at it.
1. He did all he did to truly save Nokia and he did a great job, as most of us fans have to come to believe. He is the true visionary for WP not just talking, but sticking to the guns. He is (all though a lot of money) justly rewarded for hard work and being a great asset, and lot of trash he had to take initially.
2. He was on infiltration for Microsoft to drive Nokia straight in to WP no matter the cost. The long term plan was always to return to Microsoft with a hardware company for a penny.

skyabove says:

I have watched Nokia from investor's perspective several years, and I can't help but be amazed when people say Elop did a good job, or Elop's era was success. The reality is exactly the opposite.

Just for a quick perspective,

-Nokia shareprice just before February 11th (2011) when WP-only strategy was announced: $13
-Nokia shareprice now (9.24.2013): $6.6.

So looking only at the recent quick jump in shareprice due to the MS acquisition is a bit shallow..

Had Nokia chosen Android, they would have been better off now than what the reality is. It definitely would NOT have been late to choose Android then.

Why?

Consider WP (Windows Phone)

In 2011-2012:

-Very minimal consumer demand for WP
-Very small supporting ecosystem
-The OS was unpolished, lacking many basic features
-Slow WP development (huge problem when looking at the state of the OS, see above).
-Hardware restrictions holding back manufacturers, especially Nokia
-WP7.5->WP8 fiasco (no update capability, apps were incompatible), cannibalization of sales

Just now (late 2013!) most of those points are slowly being overcome - that means years were spent for what? They were spent for going from irrelevant to getting a ticket to compete. A ticket, merely a chance! We are still the very distant third globally.

Wheres had Nokia gone Android in 2011:

-Android was the market leader and growing at very fast rate
-Huge ecosystem
-Highly polished OS, though Android has it's drawbacks of course
-Fast development, Google was pushing out updates at short pace (fragmentation not an issue considering the big picture)
-Practically no hardware restrictions to hold back manufacturers (open source nature, established platform)

Even if Nokia couldn't have got past Samsung in sales volumes, they definitely would have sold more than they are now selling WPs. Also, they would have been making profit from their D&S (phone division) because of the established and growing market (=demand) and their expertise in design and hardware (=differentator) at which they are almost unmatched.

Btw, Nokia boasted it took only about six months (IIRC) to push out the first Lumia 800. This was basically very similar to Nokia N9 (MeeGo). Lumia 800 had the same physical design as N9 and WP was actually capable to run the same hardware architecture that was in N9. That's one of the reasons why it happened so fast.

However, keep in mind Nokia was developing MeeGo at that time, which was basically Linux based OS. Had they gone Android, which is also based on Linux, would there have been significantly more synenergies than going with WP, that is totally different platform from developers perspective. I'd even like to wager, that Nokia would be more succesful even with MeeGo, but with Android it wouldn't have been a close call at all.

Slightly off topic: Elop destroyed great amount of shareholder value immediately after his 'burning platform' memo, which was followed by accelerated drop of demand for Symbian phones.

In essence, there is no way anyone could consider his work (and the board, which decisions had led Nokia to this point) even remotely succesful.

Ps. I personally prefer WP over Android, but as a shareholder, Android would have suited Nokia far better from shareholder's perspective.

Nakazul says:

The only weird thing I reacted to was when they announced Symbians death so early creating this ripple effect. Even if Symbian was a fail and Mego a nogo, why announce something this big and insta kill your current only products? Steven knew stuff we didn't at the time and the impact could have been going to be dramatically changed no matter what. Its easy to speculate but what goes on behind walls ....

Bob Shiska says:

Stock price July 17, 2012: 1.69. July 17, 2013: 4.04. He transformed a company that was plummeting in market share to one that's bottomed out and then increased market share. Don't forget his successes with the Nokia-Siemens and Navteq.
Android would've killed Nokia faster than it's killing HTC.

skyabove says:

You do understand that going to the very low $1.something was due to Elop's actions and choice of WP as all-in-strategy. All the praises for NSN's success should be directed to NSN's CEO Suri and his organization. Elop had little to do with them, maybe besides laying off people which is easy to do. All the business competence that NSN has, is gained by hard work done by that organization. Navteq/Here is a little difficult to analyze because most of their sales are internal, and Nokia accountants can play with those numbers a little bit. Even more important fact is that that navigation division's profits are pennies (and have always been) compared for example to NSN that is the most profitable segment at the moment.

_Emi_ says:

1. you dont know the future, you DONT know if android would have been good for Nokia. just look at htc, and lg and other phones... do you think Samsung is good for the android? no, they are just popular, they could add in their next phones a new operating system and people would still get the galaxy S5. because people want galaxy not android.
 
2. I would rather believe in Chris, the author of this article, be doesnt even have a Windows Phone (confirmed by Daniel). and he knows about this stuff more than you. so if someone knows more than you and its not attached to Nokia or Microsoft in anyway, but still says he was a good ceo, I believe Chris.
 
3. Nokia was dying before Elop took CEO position. also He wasnt the only one taking decisions, do you think the board didnt have to agree the MS-Nokia deal and go WP? do you think Elop was the only one taking decisions... really?
again, I dont know why you think your points are better than Chris ones, you know... your points are actually made up facts you want to try and say "this is what would have happened" and you dont know if that would have happened that way. its funny though, you say Nokia with Android and bring those points trying to justify your "elop ruined the company going WP" but hey, keep dreaming your points would have been reality. I would rather read and listen to people who knows like Christ. because you know, you were a sharehold, nothing more.

skyabove says:

1. Of course I do not know the future. But I can make educated guesses based on arguments, which I have listed in my post, and comparing those, I can't possible see how Nokia could have got in worse shape with Android than with WP.
2. No disrespect to Chris, but how you do know he knows more about these things than me?
3. Nokia was highly profitable overall when Elop took over, every division (D&S, NSN, Navteq/HERE) were making profit. It took till Q1 2012 when the D&S division made first loss, that's a year after change in strategy. So I definitely wouldn't say Nokia was dying, before Elop took over. Losing marketshare? Yes, but Elop heavily accelerated that with the 'memo' and change of strategy.

Educated guess you say? Let's Just emphasize the word "Guess" here and stick with that.

Now my reply "Wow... Your a "good guesser" especially after everything that happened.
Did you lose money as a shareholder?

skyabove says:

It's called educated guess because I'm referring to the points I listed, which are pretty relevant in my opinion.

Soooo did you make any money? Because I did. I guessed that eventually msft would buy Nokia or Nokia would start making android phones... And GUESS what? MSFT didn't buy Nokia entirely but they bought an important part. Nokia also started making android phones just incase the deal with msft went south...

Hmmm I'm a pretty good guessers too... I mean educated guesser as well lol

n3rfh3rd3r says:

People who do not have money tend to complain about people that do.  Usually having money isn't the primary issue, but rather how that money was obtained.  People are confused by the financial world, so everything is suspect and thusly borderline illegal.  No one should make money at all.  

sicnus says:

Hi Corporate America called, it wants you to forget the last 50 years. Oh wait, I guess you did.

MrPhilicorda says:

I fail to see exactly how Elop would have run down Nokia. Since he was on board, Nokia have made their best phones ever and they had their the most intensive & creative marketing strategies ever. If Elop really would've wanted Nokia to fail they wouldn't have made this incredible effort.
Nokia dropped off the wagon because of Symbian and it's been hard to restore the consumers faith after that.

Joe Acerbic says:

It was Elop's deliberate strategy to be "careful" and sell only minuscule numbers of those best phones. That's exactly how.

MrPhilicorda says:

I know it's fun to throw around conspiracy theories but I still fail to see any strong arguments behind them. I think it can be concluded as a fact that:
 
1. Nokia has made damn good phones during Elop's time
2. Nokia has been almost solely responsible promoting WP along with their own phones. I think it can be seen as a common opinion that Nokia has made a very good job at promotion where as Microsoft hasn't.
 
If the above is true, HOW exactly has Elop hindered the sales? By walking around in the shops himself telling people not to buy Nokia phones?

hal Turnage says:

He is worth every penny they give him. Its not like he didn't try! I love Nokia and can't wait for MS/NOKIA future products!

DJCBS says:

Here's the problem with the article: "In the US, it’s quite common". From here on, all your analysis on the subject falls apart. This is NOT the US we're talking about. Nokia is NOT an American company. Nokia is NOT based in the US.
This is EUROPE. Nokia is European. Nokia is based in Europe. Nokia obeys European Laws.
And here in Europe, unlike the US, we have REGULATIONS.
The US system is completely loose and deregulated. That is why the US provoked a World economical crisis with their sub-prime crisis. And why there was a scandal and judicial case on the Lehman Brothers which was quoted by, again, American rating agencies, with AAA+ the day before they went completely bankrupt.
In Europe these things don't happen that easily. There are instruments in place to prevent CEO's from screwing up companies on purpose. Even now you're seeing people in the UK being criminally judged by similar attempts.
What Elop did was leave his employers, go to Nokia, devalue the company on purpose by going with a very new and undeveloped OS by his former employers, and then make a deal with them to sell the company to said former employers while getting an absurdly high bonus from the company while he's moving to his former employers again with the prospect of becoming CEO of that company.
This conduct may be perfectly normal in the US, but it is NOT normal in Europe. Actually, the purposely ill-management of a company can constitute criminal matter.
 
User "skyabove" already did a very good explanation on why is Elop's management bad.
 
This outrageous bonus Elop is receiving is being criticized by the Finnish Government and the Finns in general because it's not a simple "bonus". It's a payment from MS for a "job well done". What we're seeing is Elop being rewarded for driving a company to the ground on purpose.
In Europe, we don't like nor allow this kind of conduct. And since the 2007 crisis, we like it even less. Capitalism here rules, but our Capitalism isn't the "American Capitalism". That's why we have laws and regulations where the US doesn't.

I've made my opinion on the Nokia/Microsoft deal public over and over again, so I'm not repeating myself. In resume: I hope it fails.
However, it's because of this management of Elop and because of the actions taken around this that you're now seeing the Finnish Government and other Europeans casting a suspicious eye over the matter. And believe me, Elop and Microsoft (but more Elop) will need a lot of luck and even, lets be clear, to grease some hands, to prevent this entire business from being investigated by Finnish and European authorities.

NOKIA & Elop agreed.
Microsoft is not buying Nokia only a part of it and Nokia will become profitable after selling this part of Nokia off and licensing their patents.
Elop did not negotiate the Microsoft agreement it was handled by ______ (help me out ppl).
Does it look suspicious yes but was anything illegal done? No.

DJCBS says:

Obviously when I say "Nokia" I'm refering to the lion share of what Nokia is: devices. Once that's gone, the company that will remain will not be the "Nokia" people want and trusted for over 20 years. What will eventually remain of Nokia will not have 1/10 of the power and influence on consumers that current Nokia has.

Anyway, you are talking about Risto Siilasmaa. Elop did not negotiate because it wasn't his job to do so. Risto Siilasmaa is the Chairman of Nokia, so it's normal that it would have to be him to do it. But it was Elop, as CEO, who took all the relevant decisions that lead to this. It's the same as Ballmer/Gates. Gates is still Chairman of MS, but it's Ballmer as CEO who is in charge. If someone was to buy MS, they would be talking to Gates and not Ballmer.
So yeah, being Elop the one in charge and responsible for the decisions that lead Nokia to this, it's upon his head that investigations fall. Yes, Risto Siilasmaa will not go scot free if that happens, but he, as Chairman, has little power over the decisions taken by the CEO and ultimately it's not his responsability. Elop took all the decisions, Elop was the one who benefited from his own actions. It is suspicious and there's actually solid ground to open a criminal investigation on the matter.
Does that mean that the result of the investigation will be criminal charges against Elop? No. But there's a chance if the investigation is open (then we move onto the real of European criminal investigation and that's a whole other world of troubles if they were sloppy with hidding the evidence.)
 

Fritzly says:

And this is exactly my point: Nokia is not selling itself to MS, Nokia is selling a division of the company to MS so why is Elop is getting this bonus? Ownership has not changed, he is the one coming back home, so to speak. If Nokia, the whole company, was sold to MS or another buyer yes, the clause in Elop contract would have applied but Nokia is still there....

Chi28n2k says:

To be honest, I generally like the EUR model of democracy. But you guys, in these comments, with your tinfoil hat conspiracies, are bugging me out! Elop diid not draft his compensation package. The Board did. I'm quite sure that they were not shilling for a Canadian (American corporate) exec, whom they did not grow up at private school with, or weren't related by marriage, or any such close, personal ties. The guy recognized that the company was burning through its cash, and didnt have a viable, DIFERITIATED product, to take, to market. Only a company with significantly more resources than Nokia had, could have taken on either Apple, or Samsung. Whether You like it, or not, Android, is not a company. It is only making two global corporations rich, and neither, is making money off of the software. Samsung, makes money from their hardware, and Google, makes money off the Google ads, and the data mining that the Google products users donate freely, lovingly, unknowingly, and often. Nokia could never have been saved, using its own resources. The only company willing to put them on their back, and carry them, was one with a fledgling os, of their own, to peddle. It was a choice, made from mutual necessity, and it has reaped rewards. If you cant understand, that a there is only one GLOBAL Android manufacturer, making decent profits, even though their nearest competitor makes a better, higher quality device, and is still being dominated, then there is no sense talking to you guys. You don't live in reality. "Nokia brand, Nokia quality..." Nokia was tanking, still had their brand equity. Still had their quality products. This ish wasn't selling, and Android would have been a placebo, that they took as they died, ala BB, Moto, HTC. Microsoft's billions allowed them to stay in the game, and become, amazingly, more relevant, than they had been in a few years. I applaud the Finnish phone maker's Board, and their CEO, for realizing a good opportunity, when they saw one, this time. I know Thorsten Hiens, is wishing he had found more than a caretaker, to assume his company, right now. They, in all probability will just work to make the company a more valuable asset to sell, rather than try to make a better Blackberry. Seems to me like nobody wants to admit that Nokia has done what's best for Nokia, these last few years, and that selling to MS, and paying the man who has saved the company from becoming ether, is just a cost of that survival, that they are having to honor.

PBLNS says:

Love to have more articles written by Chris Umiastowsky.
Please make this happen! 

zvery777 says:

I believe he saved NOKIA! Without his decision to work with MS, Nokia would've fallen even further. That's just my opinion

leo74 says:

The fact that I am writing this on my Lumia 920 shows that Elop did something right. CEOs usually cash out big, that's no secret and not specific to Nokia. Just look at what Apotheker got when he was fired after killing WebOS and putting HP on the fast track to ruin... Is it right? Probably not. Is it common? Most definitely.

I was waiting for this article all morning. Your welcome for the tip guys!!!

Gomez9 says:

Its always easy to complain that credit someone for a good job, Nokia was sinking before Elop took over, he has turned a sinking ship to a floating ship, just sailing off again, and will pick up speed quickly, just look at the Lumia brand, and ask urself, how many phones did Samsung produce before they stuck with the Galaxy range with Android, so credit were credit is due, and good on Mircosoft

Joe Acerbic says:

Saying that Elop would have made more money had he successfully turned the company around totally glosses over the fact that turning the company around would have been hard work, it would have taken time and effort, maybe even skill. What modern CEO wants to do all that when they can make $25 million by quickly screwing up?

Lot of misunderstandings here: making a quick 25 million by selling them is a good thing for Nokia and takes considerable skill. He is not going anywhere, he is run the devices company with a new brand. Much more skilled than Thornstien so far.

sundawg#WP says:

I'm not totally sure I agree that it is better if boards award options over grants.  I guess it depends on the intent of the grant.  In my case, I get a number of units granted that equals a specific dollar amount the company wishes to give me for my prior years work.  If I screw things up and our stock goes down, I effectively lose money they already gave me.

I can't believe this is in the news on more than one site today.

For an executive to be compensated more than normal wages for bringing value back to their organization is very fair. The only question is if he did that - I think some well meaning folks think that this great company of yesteryears was worth anything is a very mistaken idea - Elop made the move to make them attractive for MS. If he made the move to Android or Meego, we might be talking about Nokia like any other provider likely HTC or even worse.

a14711b says:

Does it really matter. He will get more in one year than I will see in a lifetime. Bet he even pays less in taxes than I do too. Not grumping or grousing, just seems to be a fact of life. High level CEO's and upper level seem to get more regardless of performance or abilities. Whether he did a good job at Nokia or will do a good job at Microsoft hardly matters. I still will use Microsoft products and have no real complaints about my Nokia phone.

lubbalots says:

BGR-MS asking Elop to take less compensation to ease findland outcry. Elop says no due to divorce issues. wTF!

lubbalots says:

People are talking shit all off a sudden but then I also see wp/nokia share rising worldwide. WTF is going on? Who do I believe; Fanbois or Adduplex?

Dantekai14 says:

Failure is smaller word for him. 
Mr.Flop is the most greedy person living on earth.
He always put his greed first rest go to hell. 
Most of people think that way except MS fans, because his decision only benift WP.
If he wasn't the CEO Nokia still be the king not MS salve.

Villain says:

I don't fully see how it was a failure... Was basically no turning around Nokia as a whole and the only other option would go under inevitably. Now Nokia can focus on networks, mapping etc and be a profitable company. I do think this was all a set up from the point of elop working at Microsoft though lol