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Warren Buffett on Corporate Compensation – A Lesson for Ireland

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I quote this directly from Warren Buffett, lest we forget.

Getting fired can produce a particularily bountiful payday for a CEO. Indeed he can “earn” more in a single day, while cleaning out his desk, than an American worker can earn in a lifetime of cleaning toilets. Forget the old maxim about nothing succeeding like success: Today, in the executive suite, the all-too-prevalent rule is that nothing succeeds like failure.

Huge severance payments, lavish perks and outsized payments for ho-hum performance often occur because comp committees have become salves 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 upward. Additionally, the committee is told about new perks that other managers are¬†receiving, In this manner outlandish “goodies” are showered upon CEO’s simply because of the corporate version of the argument we all used when we were children: “But Mom, all the other kids have one.” When comp committees follow this “logic”, yesterday’s most egregious excess becomes today’s baseline.

Written by Joe

May 1, 2011 at 7:18 pm

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