Sunday, March 05, 2006

"But, Mom, all the other kids have one.'"

Warren Buffett's right:

"Huge severance payments, lavish perks and outsized payments for ho-hum performance often occur because comp [compensation] committees have become slaves 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 upwards. Additionally, the committee is told about new perks that other managers are receiving.

"In this manner, outlandish 'goodies' are showered upon CEOs simply because of a corporate version of the argument we all used when children: 'But, Mom, all the other kids have one.'

"When comp committees follow this 'logic', yesterday's most egregious excess becomes today's baseline."

He adds that although he has been on the boards of 20 public companies, he has only once been put on the compensation committee.

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