March 06, 2007

Warren Buffett's Frustration Over CEO Pay Practices

Always a fascinating read, here is Warren Buffett's 23-page 2007 letter to shareholders. Warren always has something to say about executive compensation practices and this year's letter is no exception. On page 19, he notes that he has served as a director on 19 boards and he has 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."

Warren goes on to wax about a pack mentality regarding executive compensation, which results in: "CEO perks at one company are quickly copied elsewhere. 'All the other kids have one' may seem a thought too juvenile to use as a rationale in the boardroom. But consultants employ precisely this argument, phrased more elegantly of course, when they make recommendations to comp committees.

Irrational and excessive comp practices will not be materially changed by disclosure or by an independent comp committee. Indeed, I think it's likely that the reason I was rejected for service on so many comp committees was that I was regarded as too independent. Compensation reform will only occur if the largest institutional shareholders - it will only take a few - demand a fresh look at the whole system. The consultants' present drill of deftly selecting "peer" companies to compare with their clients will only perpetuate present excesses."

CD&As Pouring In

As the proxy season heats up, proxy statements are now being filed in droves (Mark Borges blogged about a bunch of them last night). This Temple-Inland proxy statement is noteworthy because they decided to write the entire CD&A in a Q&A format.

Shareholder Access: SEC Looks Abroad

The Financial Times reports that SEC Chairman "has commissioned a study of how Europe and other foreign jurisdictions handle shareholder voting rights as the regulator grapples with whether to relax rules allowing shareholders access to company proxy documents. The move will be welcomed by large European shareholder groups which have warned that the US risks falling behind in corporate governance standards and that limiting access to proxies could discourage foreign shareholdings in US companies." Meanwhile, the European Parliament approved the "Proposal for a Directive on Shareholder Voting Rights." And today's Washington Post contains a blurb stating that the SEC may hold public hearings on access in the near future.

As an aside, one of the two outstanding shareholder proposals on access has been withdrawn at Reliant Energy; the proponent did not provide a reason for the withdrawal of the proposal. And ISS has backed the shareholder access proposal coming up for a vote at Hewlett-Packard.

March E-Minders is Up!

We have posted the March issue of our monthly email newsletter.

Posted by broc at 05:11 AM
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