Trade Union News from Finland

| Start | Archive | Newsletter | Links | Publisher | About | Copyright


valikko


JUHANI ARTTO
HOMEPAGE 2013

HAKU / SEARCH

GALLERIA / GALLERY

TRADE UNION NEWS
FROM FINLAND 1997-2013

AY-UUTISET
MAAILMALTA 1999-2013

KOHTI KUMPPANUUTTA
- KUINKA SUOMI
OPPI TEKEMÄÄN
KEHITYSYHTEISTYÖTÄ
1965-2005

KAIKKI PELISSÄ -
SÄHKÖISET LISÄSIVUT

EVERYTHING AT STAKE - SAFEGUARDING INTERESTS IN A WORLD WITHOUT FRONTIERS

MEDIALINNAKKEET

BOLIVIA

HAITI

MUUT JUTUT
OTHER STORIES

INTERNET -
TIEDONHAUN OPAS 2.0

SUITSAIT

MUILLA SAITEILLA
ON OTHER SITES

LINKIT / LINKS

JULKAISIJA / PUBLISHER

© JUHANI ARTTO
1997-2013

juttupohja_4

Introduction of stock options and low taxation on capital incomes have caused a swift and sharp widening of the income gap

Helsinki (09.11.2011/edited 09.11.2011 - Timo-Erkki Heino*) For a long time after World War II and up until the mid-1990s Finland was often described as "a moderate society". But then came an abrupt change. Income inequalities, which had slowly been diminishing during this period, started to increase rapidly.

Before the mid-1990s the incomes of the CEOs of Finland's biggest companies from ordinary employees averaged 14 times the average income of the workers at the same companies. After 1995 the CEO income averaged 31 times that of the workers. If the mobile-phone company Nokia, by far the biggest and one of the most international of the Finnish companies, is included, the incomes of the CEOs averaged 110 times the income of the workers.

At the top of the CEO-income ladder was the CEO of the Nokia Corporation, Mr. Jorma Olllila, with an annual income of over 50 million euros in 2000. And at the height of the IT-boom Mr. Ollila's income was over 2,400 times the income of an ordinary Nokia worker in Finland. For anyone willing to do the sums on this it turns out that it took four hours for Mr. Ollila to receive the equivalent of an ordinary Nokia worker's annual income.

The roots for this income divide can be traced back to two decisions taken during the early 1990s' recession and banking crisis.

In 1993 the centre-right government introduced the so-called dual income taxation. This meant that earned income, wages and salaries, continued to be taxed progressively, which for top earners was rather high. However, capital income, i.e. income from stock or share dividends and capital gains etc., were taxed at a very low flat tax rate of 25 per cent.

The result is that an ordinary worker, for example someone working in a paper mill and earning annually 33 000 euros, pays proportionally more in taxes than a shareholder or someone who has invested in stock and who can expect to receive millions or even tens of millions in capital income.

The dual taxation system naturally provides strong incentives for those of a capitalist inclination to declare their income as being capital income rather than earned income. Clearly, this is not an option open to salaried and wage earners. For those who are in a position to decide for themselves which kind of income it is that they receive it provides an ideal opportunity for income shifting and tax avoidance. In Finland it is not uncommon to have small entrepreneurs with a million or two million euros in capital income courtesy of stock dividends and zero euros as earned income.

The second reason for the mid-1990s' great divide was the introduction of stock options as compensation or bonuses for CEOs and top management in Finnish companies, in keeping with practises elsewhere around the world. In 1993, as a prerequisite for EU (or then EC) membership, the ownership of Finnish companies was opened up to foreign owners also. It has been claimed that these foreign owners, US pension funds for instance, demanded stock options for top management. However, it has also been claimed that the demands of the foreign owners also provided an ideal pretext used by top management and compensation consultants for getting stock options approved.

When it comes to Finnish listed companies the boards of directors are 90 percent composed of present or former CEOs of other companies, who in their own companies have or had enjoyed stock options schemes. And naturally, they favour stock options in the companies where they are now currently directors also. The general annual meetings nominally deciding on the stock options are in Finland, as in many other countries, rubber stamps with "the old Soviet-style elections" to coin a phrase used by a former US SEC commissioner. This is a structure or culture designed to making stock options a more normal and acceptable feature of business life.

This research on CEO and worker incomes was done for the Finnish PSB television documentary "Work, Income, Stock Options" in five big Finnish listed companies: Nokia (mobile phones), UPM (paper), Fortum (energy), Konecranes (cranes) and Nordea (banking). Finland is one of the few countries where this kind of study can be carried out when taxable incomes are public information.

Read also:

*Timo-Erkki Heino worked at the Finnish Broadcasting Company YLE from the early 1970's until 2011 producing investigative documentaries on economics. - In 1994 and 2011, he received the Public Information Grant (the Finnish equivalent of the Pulitzer prize) for his documentaries on South Africa and on economic policy. - In 1997, 2002 and 2011, Timo-Erkki Heino received the annual award of the Association of Investigative Journalism in Finland.