Warren Buffet received a 15% raise that increased his compensation to almost one half million. He is one of the lowest paid CEO's in America. On the other hand, he is one of the richest persons in America. His wealth does not come from a high salary or from the award of stock options which are not awarded by Berkshire Hathaway. He is wealthy because he founded the company, and he holds a large share of founder's stock in a company whose stock price has grown with the profits that it produces over a number of years. His compensation plan differs dramatically from that of CEO's who are not company founders. The boards of most companies award generous stock options to their CEO's who become major shareholders in the firm. The rationale for the award of generous stock option grants is that this aligns the CEO's compensation with that of other shareholders. Apparently, the CEO's in previous generations, who were not compensated with huge stock option grants, were not properly motivated. One wonders why they were so successful.
My major point is that CEO's today expect their compensation to make them as wealthy as company founders like Warren Buffet, Henry Ford, Steve Jobs etc. etc. who built successful companies from the ground up. They, and their boards, believe that managing an existing firm with a strong position in an industry is similar to founding and growing a successful firm. Therefore, they should receive huge stock grants which enable them to become as rich as company founders. Warren Buffet believes that if most of the CEO's, who are so amply rewarded with stock options, were placed in firm with a weak position in an industry, or in a weak industry, they would not perform like company founders. That is why, Warren Buffet, who serves as a director on a number of corporate boards, is never asked to serve on their compensation committees.
No comments:
Post a Comment