Dear fellow business owners
I am sure you are all as concerned about the trends of executive pay the past few years as I am. As shareholders, and the true owners of these businesses, it is our duty to speak up and demand from the directors and boards to structure these compensation structures properly. The media has a very important responsibility in this regard as well. I have addressed this issue previously here, http://sastocks.wordpress.com/2009/05/03/aligning-management-with-owner-interests/ , and quotes Warren Buffet again,
“CEOs appoint the comp committee – they don’t look for Dobermans, they look for Cocker Spaniels. In my experience boards have done very little in the way of really thinking through as a owner about “what is the proper way to pay these people and incentivize them not to do the wrong thing?”
Please see below for a very good article in this regard that appeared in the New York Times yesterday.
Best regards
Albie
http://dealbook.blogs.nytimes.com/2009/09/17/blackstone-co-founder-criticizes-bonus-system/
Blackstone Co-Founder Criticizes Bonus System
September 17, 2009, 2:00 pm
The economy may be stabilizing and stocks may be rising, but Peter G. Peterson, the billionaire co-founder of the private equity giant Blackstone Group, isn’t sounding so upbeat.
At a gathering of Wall Street executives on Thursday morning in New York, he expressed deep concerns about the economic security of the United States, and said that the way Wall Street compensates its employees was one of the biggest problems facing the country.
Speaking at a breakfast event held by the Argyle Executive Forum, Mr. Peterson, who was Commerce Secretary under President Richard Nixon, told attendees that long-term, structural challenges related to entitlement spending, deficit spending and health care costs were bankrupting the United States. And he argued that short-term solutions wouldn’t fix the problem.
“Americans have been misinformed and, yes, disinformed, sometimes quite intentionally, by politicians who believe that the American people can’t take the plain, hard truth,” Mr. Peterson said, referring to the $56 trillion in unfunded mandates he says the United States government has on its books. “We have had a lot of experience in bailing out various companies and institutions. We must confront the question: Who is going to bail out America?”
Mr. Peterson addressed another subject that is generating a lot of debate in the United States and Europe: bonuses in the finance industry.
He says that the way Wall Street pays its top employees, reserving large sums for year-end bonuses, is an example of the systemic problems facing the country. He says that the current system rewards short-term gains and doesn’t serve the long-term interests of financial firms’ shareholders.
Speaking to DealBook on the sidelines of the event, Mr. Peterson described how he would set up a better compensation structure: “I would say, ‘you’ve got to put in your own money, the money needs to be paid out based on long-term performance, you’ve got to set aside some of your winnings, have a clawback.” This way, he said, “the public can see their interest and management’s interest as coherent and unified.”
Mr. Peterson made $1.8 billion when Blackstone went public in 2007. In 2008, as he retired from the firm, he announced the formation of the Peter G. Peterson Foundation, which will devote $1 billion of his wealth to educate the public and politicians about the long-term problems facing the country.
Mr. Peterson said Thursday he believed it would take a strong president leading a bipartisan effort with formidable public support to fix these long-term problems,
“I say to all of us, let us get off our respective butts and make it safe for our politicians to make the tough choices, to do the right things not simply for our kids and grandkids but for this remarkable country’s future,” Mr. Peterson said in his speech. “And let us make it unsafe for out politicians to continue to do nothing, continue to deny the undeniable and to continue to pretend that we can sustain the unsustainable.”
– Cyrus Sanati