Electronics Production | May 19, 2005

Elcoteq corrects false media claims

Certain media in Finland and Estonia have recently claimed repeatedly that workers at Elcoteq Network Corporation's manufacturing plants in Tallinn, Estonia, are paid low salaries and are required to work long hours. The media in question support these claims by quoting expert opinions.
For example, in an article published in Helsingin Sanomat on March 11, 2005 Pekka Sivill, regional secretary of the Finnish Metalworkers' Union claims that "the salaries paid by Elcoteq in Estonia are substantially below the average salary and lower than in other corresponding companies." Requests by Elcoteq's management to have these erroneous claims corrected have been systematically rejected.

Elcoteq Network Corporation's Board of Directors has noted that these claims, expressed in public, conflict with the company's corporate governance practices and values, and for this reason the Board asked its Review Committee to establish if there are any grounds for these claims. The Review Committee has received a report detailing the salaries and working hours of the personnel in question and this report has been further audited by the company's auditors, KPMG. Having examined this report and heard the auditors' opinion the Board of Directors states that the claims expressed in the media concerning the salaries and working hours at the Tallinn plants are without foundation and categorically false.

Workers' salaries
The report commissioned by the Board of Directors shows that workers' average salaries are clearly higher than the average for comparison groups. For the purposes of the report, the average monthly salaries of Elcoteq's workers in 2003 were compared with the most recently available salary statistics (2003) released by the Statistical Office of Estonia. The comparison applied the same classification as used by the Office itself: craft and related trade workers, elementary occupations, and plant and machinery operators and assemblers in Estonian industry. The salary data examined by Elcoteq's auditors indicate that the average monthly salary of the Tallinn plants' workers are clearly higher, depending on competency required for the work, than the average gross salaries paid to comparison groups. The differences in salaries paid for different competency categories are as follows:

- Craft and related trade workers: the average salary paid to Elcoteq's workers is approximately 40% higher than in the comparison group

- Elementary occupations: the average salary paid to Elcoteq's workers is approximately 70% higher than in the comparison group, and

- Plant and machinery operators and assemblers: the average salary paid to Elcoteq's workers is approximately 60% higher than in the comparison group.

Elcoteq continuously monitors salary trends in all its countries of operation by comparing the salaries it pays with the local salary level in the relevant business sector. It is of the utmost importance to the company's business success that Elcoteq pays competitive and attractive salaries, to ensure its ability to hire competent, motivated employees and to keep its key human resources within the company. This is a strategic choice.

Working hours
Elcoteq's Tallinn plants apply the 40-hour week stipulated by Estonia's law on working hours. The working consists of five days and the normal working day is 8 hours. The Tallinn plants operate 24 hours a day, seven days a week in uninterrupted three-shift operation and for this reason the plants apply a system for balancing working hours.

At the Tallinn plants about 300 workers in stock management, machine maintenance and quality control regularly work 12-hour shifts. On the initiative of the production workers at the Tallinn plants, plant management has agreed to a fixed-term trial period in which each production shift lasts 12 hours, including two half-hour lunch breaks. The longer shifts guarantee workers longer free periods after the working period - i.e. four working days followed by four free days. However, the total number of hours worked by 12-hour shift workers is the same as the hours worked by 8-hour shift workers for the full balancing period. The trial, which started in April, applies to one production line and approximately 230 workers, i.e. about 6 % of the plant's entire workforce. The trial ends on July 31, 2005, after which employer and workers will together assess its results.

The report commissioned by the Board showed that the claims in the media concerning salaries and working hours have been incorrect. However, the report did not address the question as to why the aforementioned claims, as well as other groundless and false information, have been repeatedly spread about the company, or whether such information and claims have been put into circulation intentionally.

The false claims, which the media has not agreed to correct despite the company's numerous requests, have given the capital markets and the company's other stakeholders a distorted image of the company's activities and operating principles and might have damaged the company's corporate image and business. Since the claims could also have negatively affected the company's shareholder value and investment appeal, the company's Board of Directors has decided to examine the feasibility of further action. The Board's Review Committee is continuing to investigate the matter and will report to the Board on any further action it considers necessary.

Since 2003 Elcoteq has been a member of the international Kempen/SNS Smallcap SRI (Socially Responsible Investment) Europe index maintained by Kempen Asset Management and SNS Asset Management. Membership is granted only to companies that meet the index's stringent criteria on business ethics, human resources and the environment.
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