From the Pioneer Press’ Buffett too hard on director pay:
The media, he says, have scrutinized “CEOs who have received astronomical compensation for mediocre results.” At Berkshire Hathaway Inc., where the famously successful investor has long been chairman, things are different. Pay can be high, but only when there are results.
“When we use incentives €” and these can be large €” they are always tied to the operating results for which a given CEO has authority,” Buffett wrote in his annual letter to shareholders, released Thursday.
We’ve posted on CEO compensation before (here, here and here) since it is a topic at the forefront of today’s business news. Warren Buffett takes the right approach to the CEO compensation package in that he ties it to results (similar to a sales commission structure).
He mentions something for which I was not familiar:
But there’s one area where Buffett seems not to believe in pay for strong performance, an area where he seems to think any significant compensation can be corrupting. That area is compensation for independent directors.
“Many directors who are now deemed independent by various authorities and observers are far from that, relying heavily as they do on directors’ fees to maintain their standard of living,” Buffett wrote. “These payments, which come in many forms, often range between $150,000 and $250,000 annually.”
Buffett is obviously a smart businessman and he seems to be on the right path here. The incentive for these independent directors is not aligned with bringing maximum shareholder value. You would think the media would be interested in this storyline as opposed to just carping about CEO compensation.