$18 Million Reasons Why Elop Could Be Microsoft's Next CEO

Microsoft  (NASDAQ: MSFT  )  is reportedly going to pay around $18 million of former Nokia  (NYSE: NOK  )  Chief Stephen Elop's $25.5 million severance package, as part of its acquisition of Nokia's handset and services division.

While we do know that Elop will be running the handset division until the acquisition closes, and that, "he will become employed with Microsoft pursuant to the terms of an employment agreement with Microsoft," per the original release, this is more ammo for those who are convinced that Elop will succeed Steve Ballmer. 

Is $18 million really a large payoff for a non-CEO executive? Let's take a look at a recent example:

Not unprecedented
We only have to look to Yahoo!  (NASDAQ: YHOO  )  to see that highly paid non-execs aren't that uncommon. One of CEO Marissa Mayer's first "acquisitions" was bringing COO Henrique DeCastro over from Google to help turn the company's advertising business around. As All Things D reported last year when DeCastro was brought over, his total compensation was around $59 million. 

Advertising revenue is central to Yahoo!'s turnaround, and Mayer has emphasized how important hiring the right people is to the company's success. From her interview at TechCrunch DISRUPT SF:


"For me it's really a chain-reaction of four things: Hiring the right people; having them build the right products; getting that turned into traffic; because traffic ultimately leads to revenue ... You have to get the right people there before you can build the right products; the products have to be good or people won't use them."


And getting great people -- much like investing in the best companies -- often comes at a premium price. 

But is Elop right for Microsoft?
Elop, as a former Microsoft executive, comes in with an understanding of the company that an outsider just couldn't offer. And with the restructuring of Microsoft's divisions earlier this year, bringing in a leader who is familiar with the company's operations would make for a much smoother transition with less need to restructure once again. 

Add in Elop's experience gained as CEO of Nokia, as well as his expertise in mobile, and there are a lot of reasons that Elop could very well be a strong choice as Microsoft's next top man.

As to Nokia, Elop leaving with the handset division makes sense. The new Nokia with be a leaner, more focused company. Interim CEO and Chairman Risto Siilasmaa has talked about how wireless will still be important to the company moving forward, with its infrastructure business supplying LTE and other wireless technology, and its HERE mapping business still relying on Microsoft. Whether Siilasmaa will be the permanent CEO at Nokia remains to be seen. 

Final thoughts
The final decision about Microsoft's next CEO will be decided on how much of a shakeup the board thinks the company needs. While Yahoo! looks to be in a very strong position as a result of Mayer's efforts to blow up and rebuild much of the company, chances are, Microsoft will end up with a CEO who won't rock the boat too much. And Elop probably fits that bill as well as anyone.

 

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Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On September 22, 2013, at 2:39 AM, nudnyk wrote:

    Elop getting paid by MS for accomplishing this sale combined with the "burning platform" memo makes one wonder if it does not cross the line (being polite) of good taste. Also, could the latest run in the share price be an effort to prove that this deal is good for share holders? and if so by whom?

  • Report this Comment On September 23, 2013, at 12:56 PM, H3D wrote:

    "Is $18 million really a large payoff for a non-CEO executive? Let's take a look at a recent example:"

    When the deal was negotiated, he was CEO. So that is the basis on which the deal was negotiated.

  • Report this Comment On September 24, 2013, at 1:17 PM, TMFVelvetHammer wrote:

    >>When the deal was negotiated, he was CEO. So that is the basis on which the deal was negotiated.<<

    Not exactly. It wasn't based on his current position as much as just what the Nokia "golden parachute" was ($25 mil,) and how much of it Microsoft was willing to pay ($18 mil.)

    It's not about what he did at Nokia: It's about what he's *going* to do at Microsoft.

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