Shareholders of Ericsson AB are questioning the telecom-equipment giant’s decision to deviate from its own remuneration guidelines to pay massive bonuses to Rory Read, the chief executive of Vonage Holdings Corp. it acquired last year.
(Bloomberg) — Shareholders of Ericsson AB are questioning the telecom-equipment giant’s decision to deviate from its own remuneration guidelines to pay massive bonuses to Rory Read, the chief executive of Vonage Holdings Corp. it acquired last year.
Read’s compensation came to more than $36 million in 2022, according to Ericsson’s annual report, published Wednesday. This compares to total remuneration of CEO Borje Ekholm of about $5 million for the same year.
“Sounds like Read had a very good bargaining situation and that Ericsson really thinks he has a unique competence and experience,” Joacim Olsson, CEO of the Swedish Shareholders’ association, said by phone on Thursday. “If not, this is a catastrophic failure in the construction of the compensation plan.”
The payments to Read come on the back of scandals and ethics breaches at the Swedish telecommunications equipment maker, and as it faces a cooling market for 5G gear. Its shares are down almost a third in the past four years, which owners seeing the value of their holdings rise and fall wildly.
Other investors were also puzzled.
“We knew that the purchase of Vonage was a record-breaking deal, involving staggering sums,” said Jens Soderblom, spokesperson for AMF, Ericsson’s third-largest owner by votes. Responding to emailed questions, Soderblom called on the company to “justify and explain” why “it has chosen to deviate from the compensation guidelines in the way that it has done.”
Institutional investor Swedbank Robur was also unaware of the payout to Read, spokesperson Carina Sesser Nylund said by email. The investor plans to request more information and expects the issue to be raised at the annual general meeting on March 29, she said.
Read, who is now head of Ericsson’s new business area Global Communications Platform, is to be compensated for an existing long-term share-based variable incentive program in Vonage. Those payments total $43.4 million, whereof about $32.8 was paid during 2022. The Swedish 5G equipment maker said it would also compensate Read for any excise tax and interest or other penalties that may become due, for up to $4 million.
Ericsson cited “extraordinary circumstances” for the deviation, saying such moves can be made if needed “to promote the company’s long-term interests and sustainability or to ensure the company’s financial viability.”
The $6.2 billion all-cash deal for Vonage, Ericsson’s biggest ever, was announced in November 2021, as part of an effort by Ericsson to ramp up its cloud communications offering. The acquisition was met with skepticism among many investors and analysts, who said Ericsson overpaid in a poorly timed deal.
In addition to Read’s legacy incentive program, Ericsson granted him a two-year cash-based incentive program to ensure the fulfillment of the Vonage management’s business plan. While the maximum he could have earned from that plan in 2022 was $18 million, his actual achievement came to about $739,000, payable in 2024 if he remains employed at Ericsson.
“Let’s just hope that this — for once — will lead to some form of value for the poor shareholders who have been owners of Ericsson shares over the past five years,” said Olsson at the shareholders’ group.
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