Golden handshake worth SEK 58 million causes debate
A managing director's "golden handshake" worth SEK 58 million caused much debate in Sweden in February 1998, when it was reported during a bargaining round in which workers are urged to be restrained in their pay demands. The chair of the Swedish Employers' Confederation asked for a common agreement on acceptable rules for these situations.
At the beginning of February 1998, the media reported that the 56-year-old managing director of the Stora forestry company, who was about to leave his job after six years, would receive a "golden handshake" (or severance package) worth SEK 58 million. In the first two years following his resignation, he would receive SEK 2.8 million and from the age of 60 a large pension. What made the information conspicuous, apart from the large sum, was that the managing director was said not to have been dismissed but to have left on his own initiative, and that his terms of resignation had been renegotiated and improved shortly before he had made his decision.
Very generous golden handshakes have attracted attention from time to time in the last couple of years. This latest case, however, had more far reaching effects, even if it eventually turned out that the managing director's decision to resign was not totally voluntary. The reports came in the middle of the current collective bargaining round, where workers are being urged to acquiesce to small pay increases. Even the chair of the Swedish Employers' Confederation (Svenska Arbetsgivareföreningen, SAF), Anders Scharp, reacted. In an article in the leading morning paper, Dagens Nyheter, he wrote that the information had caused indignation even among business people. Mr Scharp proposed that representatives of large companies, in a dialogue with the Government, should work out new systems for the remuneration of managers. Their contracts should be characterised by four features:
- as a basis, the manager should have a fixed salary based on competence and the importance of the job;
- a substantial part of the compensation should be related to the results of the business;
- the emphasis in the remuneration package should be placed on the manager's active period, not on the period after he or she has left the job; and
- lastly, it should be possible to dismiss the manager without notice if the owners think that he or she does not do the job well enough. In that case, but not if he or she leaves voluntarily, the manager should receive redundancy pay which makes it possible to change over to a new activity.
The chair of the board of Stora, who had agreed on the golden handshake with the managing director, has also now resigned.