I have nothing against Stephen Elop. The former and future Microsoft executive seems to have done a pretty good job running Nokia. It’s a little awkward that he was offered $7.3 million to move from Microsoft to the Finnish phone-maker and stands to receive $25.4 million to rejoin the his former employer. But the tech industry often has a slightly incestuous feeling, and there were plausible strategic arguments for both moves. Elop did what almost any senior American executive would have done – negotiated and renegotiated favourable contracts.
However, Elop’s packages are part of an outrageous system of executive remuneration. It features pointlessly complex arrangements – base salary, cash bonus, a small collection of share plans plus substantial payments for coming and going. The deals are rigged in the executive’s favour; Elop obtained highly attractive last minute alterations just before the sale of the phone business. And the numbers are all unjustly large, by any relevant standard.
The announcement of Elop’s terms was understandably met with widespread disgust. The same response is typical whenever executive pay comes up.
Such an unpopular system could be changed quite easily. Just pass a few laws or enact a few regulations. The wish list is quite simple: ban deferred pay and bonuses for people with very high salaries, and impose a ratio capping the highest pay at no more than 15, 20 or 40 times the average.
These changes should be easy to enact. After all, a more straightforward and less generous remuneration regime would be politically popular. The affected executives and some free-market purists would be opposed, but most economists should be strongly in favour, since bosses who were less distracted by pay negotiations and less interested in short-term share price moves would be more effective.