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.