Letter from “THE CEO”
We have another joyful letter from Warren Buffet, CEO of the Berkshire Hathaway Corporation. As usual he addresses the company’s shareholders in a good-humored and honest way and just couldn’t stop himself from rhapsodizing about the infamous debate over the CEO compensation in the States.
“I mentioned last year that in my service on 19 corporate boards (not counting Berkshire or other controlled companies), I have been the Typhoid Mary of compensation committees. At only one company was I assigned to comp committee duty, and then I was promptly outvoted on the most crucial decision that we faced. My ostracism has been peculiar, considering that I certainly haven’t lacked experience in setting CEO pay. At Berkshire, after all, I am a one-man compensation committee who determines the salaries and incentives for the CEOs of around 40 significant operating businesses.”
This part actually, gives a great mouth to most of our thoughts on the relationship between maximizing long-term shareholder value and executive pays.
“If a CEO bats .300, he gets paid for being a .300 hitter, even if circumstances outside of his control cause Berkshire to perform poorly. And if he bats .150, he doesn’t get a payoff just because the successes of others have enabled Berkshire to prosper mightily. An example: We now own $61 billion of equities at Berkshire, whose value can easily rise or fall by 10% in a given year. Why in the world should the pay of our operating executives be affected by such $6 billion swings, however important the gain or loss may be for shareholders?”
And just before he finishes, he toughens his thoughts by enouncing the fact that CEOs are literally treated like kings. (Been there, seen that) As, in my opinion, the metaphor “king” here is not an overblown one, he is well aware that most of those kings have received astronomical compensation for mediocre results.
In my dull opinion, I compare those guys to a cutthroat and greedy king from those ancient Britain times, whose fall leads to the fall and also the independence (forming of a new constitution) of the very land. And Mr. Buffett is indeed the old wise “Sage” whose orders and thoughts are followed for liberation.
Must-Go: Sage is a living legend on corporate governance and business management matters. I once again insist that you stay tuned to his addresses via BRK’s web site.
2007 Letter to Shareholders
