North by Northwest
Veteran
From Uncle Warren,
"Too often, executive compensation in the U.S. is ridiculously out of line with performance. That
won’t change, moreover, because the deck is stacked against investors when it comes to the CEO’s pay.
The upshot is that a mediocre-or-worse CEO -- aided by his handpicked VP of human relations and a
consultant from the ever-accommodating firm of Ratchet, Ratchet and Bingo – all too often receives gobs
of money from an ill-designed compensation arrangement."
"Huge severance payments, lavish perks and outsized payments for ho-hum performance often
occur because comp committees have become slaves to comparative data. The drill is simple: Three or so
directors -- not chosen by chance -- are bombarded for a few hours before a board meeting with pay
statistics that perpetually ratchet upwards. Additionally, the committee is told about new perks that other
managers are receiving. In this manner, outlandish “goodies†are showered upon CEOs simply because of
a corporate version of the argument we all used when children: “But, Mom, all the other kids have one.â€
When comp committees follow this “logic,†yesterday’s most egregious excess becomes today’s baseline."
Source: http://www.berkshirehathaway.com/letters/2005ltr.pdf
"Too often, executive compensation in the U.S. is ridiculously out of line with performance. That
won’t change, moreover, because the deck is stacked against investors when it comes to the CEO’s pay.
The upshot is that a mediocre-or-worse CEO -- aided by his handpicked VP of human relations and a
consultant from the ever-accommodating firm of Ratchet, Ratchet and Bingo – all too often receives gobs
of money from an ill-designed compensation arrangement."
"Huge severance payments, lavish perks and outsized payments for ho-hum performance often
occur because comp committees have become slaves to comparative data. The drill is simple: Three or so
directors -- not chosen by chance -- are bombarded for a few hours before a board meeting with pay
statistics that perpetually ratchet upwards. Additionally, the committee is told about new perks that other
managers are receiving. In this manner, outlandish “goodies†are showered upon CEOs simply because of
a corporate version of the argument we all used when children: “But, Mom, all the other kids have one.â€
When comp committees follow this “logic,†yesterday’s most egregious excess becomes today’s baseline."
Source: http://www.berkshirehathaway.com/letters/2005ltr.pdf
