Executive Compensation 2008

This post is from Theodore Mirvis of Wachtell, Lipton, Rosen & Katz.

My partners Michael J. Segal, Jeannemarie O’Brien, Adam J. Shapiro and Jeremy L. Goldstein recently issued Executive Compensation 2008, a memorandum outlining key recommendations for directors to consider as they address executive compensation matters in the year ahead. The memorandum considers the importance of rewarding long-haul performance, paying for performance and retention, planning for executive succession, and using wealth accumulation analyses and internal pay equity studies. The memorandum also discusses the disclosure of executive compensation, including the merits of disclosing the terms of confidential compensation arrangements.

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  1. Zbigniew Sobolewski
    Posted Wednesday, April 2, 2008 at 10:47 pm | Permalink

    To authors:

    I wonder why your “Executive Compensation 2008” work is focused on Executives only. Do you think that Executives makes company and all other employees are the “Cost Center”? Don’t you think that the “Employment at Will” philosophy should be applicable to the CEO as well? And why the Performance Targets are “harmful to American business”? The logic escapes me.
    Here are couple examples of what I think the lack of transparency and preferential treatment of the “Executives” in the work environment leads to.

    In socialism the most proliferated slogan was: “One contributes as much as he is capable for and is awarded as much as his contribution justifies”. Well, it is a great slogan if there is an objective means of the “capabilities” and “contributions” classification across entire spectrum of activities, skills and accomplishments in a modern society. And more even important, the existence of the “body” capable of the objective judgment. “Animal Farm” by George Orwell for anyone? We have seen that those who were on the top are tending to overestimate the importance of their “contributions” and often lacking really useful “capabilities” leading to being actually leeches sucking the blood from undernourished population under their control. I could show a lot of direct examples and would rather move to next chapter of this post.

    Now let see a first example from this country.

    There is an engineer with a good technical education and 10 years of experience earning let say $80K. There is a company employing 10 of those creative creatures and large number of other workers classified as a ‘Head Count” or “Cost Center”. There is a CEO who earns $1.6M because he is a “guru”. Well, maybe he is worth of 20 engineers because of what? Is he really capable to do their collective work or is he simply awarded by “his peers” the status of the leech from previous paragraph. I hope that Jack Welch book about his career through the greens of the golf field is known for you, the reader. I am not finished yet. Our hypothetical company has profit sharing plan or maybe other way of the mechanism to deliver the optional compensation to its employees. And there it goes: each employee will get certain percentile of his or her salary at the end of the year according to the level of importance established by management. And it looks like our “engineers” will get even as much as 10% and more then manufacturing floor workers but because the level of importance rules our CEO gets 100%. And it is on the top of the “performance bonus” he is entitled regardless of other factors. Wouldn’t be nice to have 10% of the salary across the board? Looks like the $160K would be an insult for our “guru” though. By the way our CEO does not “own” our company yet. He was just hired. Looks like he is on the fast track to take over, reduce engineering resources, layoff manufacturing workers, move the manufacturing to XYZ where lead paint is not a problem and increase his bonus because paper pushers show how efficient he is selling our country to our enemies. I see a lot of similarities with Communist Party Executives or CPEs from the previous chapter.

    Second example: There is a mechanic or Bear Stearns bank executive. He buys the Harley for a $12K, paints flames red on the fuel tank and apprises the bike at $22K or invest money in the depreciating real estate and shows great interest income potential. In mean time our mechanic is riding the bike heavily and our executive pays himself in abundance. Now our mechanic sells the bike for $10K and writes off $12K and our executive sells the bank for penuts and claim Capital Loss. Someone gets the lemon and all of us lose the bailout money. Our mechanic and bank executive are well feed leaches, aren’t they?

    Here is one more and most controversial example and statement. I do not hesitate to call the “public companies” a forefront of the Communism under disguise. We all (shareholders) own those companies privately or through our retirement funds or else, like it or not. We know nothing and have nothing to say about how they are really governed, very much like the Communist country. There are those who know better on the top and are immune from personal responsibilities for their actions through Corporate Governance Rules and paid for it hansom salaries and bonuses. Looks much like the Communist Government VIPs.

    I believe these subjects deserve more attention and inclusion into the “Executive Compensation”.
    I would like to see some sanity in here…. Not that I am scared. I am the engineer and sooner or later someone will ask me for the paint job design for which I will charge more then “$12K” so my fat to be bloodsucker will not be able to make money and claim the loss at once.