One of the biggest recent deals in the mobile phone market reveals a curious case of misleading information about Nokia’s former Chief Executive Officer, Stephen Elop, and Microsoft’s “acquisition” of its possible future CEO.
Nokia’s Chairman Risto Siilasmaa announced that Mr. Elop’s service contract with Nokia had “essentially the same” bonus structure as the one of its previous CEO. However, the Finnish Newspaper “Helsingin Sanomat” searched SEC filings and uncovered evidence that fundamental changes to the referred service contract were implemented in 2010.
As a result, Mr. Siilasmaa was later forced to correct the previous information and announced that Mr. Elop’s contract also contained an immediate share price performance bonus, which would be paid in case of a “change of control” situation.
The chain of events that would trigger Mr. Elop’s payout seemed unlikely to happen at the time of the change in his contract. Microsoft’s €5.44billion purchase of Nokia mobile phone business changed this scenario. The deal triggered the “change of control situation” in Mr. Elop’s contract, entitling him to a payout of approximately US$25million.
Additional information about Mr. Elop and Microsoft arouse suspicion over the contract change. Mr. Elop was a Microsoft employee before joining Nokia as CEO in 2010, Nokia and Microsoft entered into an agreement in February 2011 to standardize the Windows Phone operating system in Nokia mobile phones, and Nokia mobile phones running Windows have not assumed a relevant position in the smart phone market since then.
Microsoft’s CEO, Steve Ballmer, is of the view is that the acquisition of Nokia’s mobile phone business allows Microsoft to be “agile and clear” with consumers and with its innovations.
After the deal was announced Mr. Elop resigned as Nokia’s CEO and Board member. He assumed the position of Nokia’s executive vice president of the Devices & Services unit, and will join Microsoft once the deal is closed, what is expected to happen in early 2014.
Mr. Elop’s payout amount is higher than the compensation he earned during the last three years with Nokia and Microsoft will pay 70% of such amount to discourage him from leaving the company. Microsoft seems to view Mr. Elop as a great asset and a possible successor of Mr. Ballmer.
The combination of facts triggered angry reactions in Finland as well as questions about bonus structures for companies facing difficult times. What first looked for investors as a bonus structure based on Nokia’s performance, turned out to be a structure well suited for the future sale of its mobile phone business.
The deal still depends on approval from regulators and Nokia’s shareholders.