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Saturday, July 20, 2024

Minister fails to curb executive pay

Executive pay and bonus deals have risen so high in Norway that they’ve drawn public scorn and been branded as “perverse” by labour union officials. Now they’ve sparked political drama, after defiant corporate boards have refused to follow new government guidelines, even at state-owned and controlled companies.

She’s still smiling, but Norway’s new government minister in charge of business and trade, Cecilie Myrseth of the Labour Party, is under pressure to enforce pay moderation guidelines for top executives at companies that are state-owned or controlled. The companies involved are defying them. PHOTO: NFD/David Berg Tvetene

Norway’s new Trade Minister Cecilie Myrseth has found herself at the center of the storm. She succeeded Jan Christian Vestre in April when he became health minister, and she was expected to follow up on his demand for moderation. Both of them represent the Labour Party, and Vestre had launched the guidelines aimed at keeping executive pay raises in line with the average for all other company employees. He also called for executive bonuses to be limited to a maximum of 25 percent of their base salary.

When corporate annual reports and proxy statements were released this spring, however, newspaper Dagens Næringsliv (DV) and other media could report that Norway’s biggest companies were either ignoring the guidelines or finding ways to avoid them. Even though the government owns 67 percent of state oil company Equinor and 54 percent of telecoms firm Telenor, for example, their boards simply raised their CEOs base pay to make up for any bonus cut.

Equinor CEO Anders Opedal’s received total compensation of NOK 20.7 million (around USD 2 million), reported newspaper Klassekampen, while Telenor CEO Sigve Brekke was paid NOK 16.6 million. The leader of Norway’s biggest bank DNB, in which the state owns a 34 percent stake after bailing it out in the early 1990s, was paid NOK 15.8 million, while the CEOs of both Norsk Hydro and Yara (in which the state also owns around a third of their shares) were each paid just over NOK 15 million.

It didn’t help that news of the high executive compensation broke just as trade union federations were trying to negotiate wage pacts for workers that would at least cover the rise in the cost of living. Most were successful, resulting in pay hikes of around 5 percent, but that paled in comparion to top leaders’ pay. “I think the executive pay level is perverse,” Steinar Krogstad, deputy leader of Norway’s largest labour federation LO, told Klassekampen. “It increases year by year. If we’re to base worklife on mutual confidence, the huge pay differences are poison.”

The former trade minister, Vestre, had earlier told newspaper VG that he intended to curb executive pay with his guidelines that took effect this year. “I want to be a minister that gets something done,” he told VG when launching the “new rules” in 2022. Since his ministry represents the state’s ownership interests in companies like Equinor, Telenor and many others, he clearly thought he’d have some clout, only to find out that his rules were circumvented.

Former fisheries minister Cecilie Myrseth succeeded Jan Christian Vestre as trade minister when Vestre became health minister in April. PHOTO: NFD/David Berg Tvetene

When DN questioned Vestre, though, he refused to say what concrete measures he would take at the companies’ annual meetings to bring them in line. He also wanted to see how or if other state-owned companies would comply with the wage- and bonus limitations, and how they justified compensation packages. He had claimed they should “have very good reasons” if they raised leaders’ pay more than that of other employees.

Not long afterwards, Prime Minister Jonas Gahr Støre transferred Vestre over to the health ministry and tapped Myhre to take over as minister in charge of business and trade. She then faced the refusal of most all companies to follow the guidelines. In Equinor’s case, CEO Opedal’s paypacket rose by 5.6 percent, from NOK 19.6 million in 2022 to NOK 20.7 million, but board chairman Jon Erik Reinhardsen doesn’t want Opedal’s pay to decline, which it would if his bonus is reduced. Opedal has thus received what DN reports to be an “extraordinary” salary raise that won’t be revealed until next year’s annual report is issued.

‘Bonus bonanza’
There was also what Norwegian media called a “bonus bonanza” at state power firm Statkraft, and ongoing high executive pay across the board. Now Myrseth is refusing to reveal how she intends to tackle the disobedience among state-owned companies, DN has editorialized that the entire effort to curb executive pay is “a farce,” and notes that leaders of even wholly owned firms like rail maintenance firm Baneservice have received pay hikes of as much as 27 percent and double bonuses.

When confronted with the pay numbers coming out in recent weeks, Myrseth noted that some bonuses have been reduced, calling that “important.” She wouldn’t comment on the large, looming hikes in base pay. Nor would she clarify whether top executives should accept the same average pay raises (in kroner, not percentages) as other employees.

Kirsti Bergstø, leader of the Socialist Left Party (SV), is bringing the executive pay drama up before the Parliament’s disciplinary committee. PHOTO: SV

The high executive pay issue has become so heated that the Socialist Left Party (SV) is bringing up the government’s failure to enforce moderation in the Parliament’s disciplinary committee. SV has also won support from the Reds, the Greens and the conservative Progress Party, which is furious over the large amounts paid also to companies wholly owned by the state and set up to handle everything from airports to train service. “We can’t just sit here and watch this happen,” SV leader Kirsti Bergstø told DN this week. “The Parliament has a responsibility to make sure its will is carried out.” She’s also questioning Myrseth directly, along with the media.

The boards of other large state-owned companies including Kongsberggruppen have flat out stated that they’re ignoring the guidelines and won’t cut bonuses from 50- to 25 percent of pay. Kongsberg board leader Eivind Reiten claims such cuts in executive compensation would hurt the company, and its ability to attract top executive talent. Some professors specializing in business issues agree, arguing that big bonuses and high salaries motivate executives.

Others disagree, and question whether CEOs would really quit if they don’t get bonuses or big raises. “How realistic is that?” questioned Tor Grenness, professor  emeritus of international leadership at business school BI, in a commentary published in DN on Thursday. Not very, he wrote, doubting that CEOs “will take their hats and go” on the grounds “I’m just in it for the money.” He doesn’t expect a mass exodus, “because where will they go? Other companies would be subject to the same rules being enforced, and it’s not improbable that other companies will eventually follow the government’s initiative.”

They could, of course, move abroad, where executive pay can be even higher, like it is in the US and the UK. But that may be unlikely, too.

LO officials have called Kongsberg’s Reiten “disloyal” and out of line, while others call the boards defiant and top executives greedy. Some wonder how they manage to spend all the millions they earn, and why they need salaries that are so much higher than Norway’s current average salary of NOK 685,000 a year. Several of the companies refusing to follow the government’s guidelines are also profiting from huge government contracts at present, like defense contractor Kongsberg and ammunitions maker Nammo, both of which are heavily involved in defense support for Ukraine.

Myrseth told DN late this week that she still has “confidence in the board leaders  we have in the state-owned companies. This is about how we should manage value on behalf of everyone. We have said we want more moderation and that they should bring down bonuses. We will follow this up.” Berglund



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