WARREN BUFFETT: I would say this. In my own view,
the most exorbitant are not necessarily the biggest numbers.
What really bothers me is when companies pay
a lot of money for mediocrity, and that happens all too often.
But
we have no quarrel in our subsidiaries, for example,
for paying a lot of money
for outstanding performance.
I mean, we get it back 10 or 20 or 50-for-1.
And
similarly in public companies,
we think that there have been managers
— in our managers —
who have taken companies
to many, many, many billions of market value
more than would’ve happened with virtually anyone else.
And they sometimes take a lot of money for that.
Sometimes, as in the case of Tom Murphy at Cap Cities,
you know, it just didn’t make a difference to him.
I mean, he performed in a way that would justify
— would have justified huge sums, but it wasn’t —
he would tell you that he had all the money he needed
and he just didn’t care to take what the market might bear.
But I am bothered by irrational pay systems.
And I’m particularly bothered when
average managers
take
really large sums.
I’m bothered when they design,
or have designed for them, systems that are very costly to the company —
maybe partly to make themselves look good because they want
huge options themselves, so they feel if they give options
widely throughout the company — so they design a system
that is illogical company-wide because they want one that’s illogical
for them personally.
But
large sums, per se, don’t bother me. I’m not saying,
you know, whether any individual should — might want to take them or not.
But I do not mind paying a lot of money for performance.
It’s done in athletics, it’s done in entertainment, but in business
the people who are the .200 hitters and the people who
would not attract a crowd as an entertainer have worked it out so that
— I mean, the system has evolved in such a way that —
many of them take huge sums. And I think that’s obscene,
but I can tell you, there isn’t much you can do about.
The system feeds on itself.
And companies do look at other companies’
proxy statements, every CEO does. And they say,
“Well, if Joe Smith is worth X I have to be worth more.”
And they tell the directors that,
“Certainly you wouldn’t be hiring anybody that was below average,
so how can you pay me below average?”
And the consultants come in and ratchet up the rewards.
And
it’s not anything that’s going to go away.
It’s like we were talking about campaign finance reform
earlier.
The people who have their hands on the switch
are the beneficiaries of the system.
And it’s very hard to change the system when the guy whose
hand is on the switch is
benefitting enormously, and perhaps disproportionately,
from that system.
Charlie?
CHARLIE MUNGER: Well yeah,
I’d like to report that the original Vanderbilt behaved even better than
the people at Berkshire Hathaway.
He didn’t take any salary at all.
He thought it was beneath him as a significant
shareholder to take a salary.
That ideal, I’m afraid, died with him.
(Laughter)
WARREN BUFFETT: Yeah, Charlie and I —
our directors are paid $900 a year,
but I tell them on an hourly basis they’re making a fortune
because we don’t work them that hard.
(Laughter)
But Charlie and I did not think through,
when we established that $900 a year,
is that they set our salaries, too, so —
(Laughter)
We have not followed the standard procedure, which is to
load it on the directors, and the directors shall load it on you.
CHARLIE MUNGER: I do think it will have pernicious effects
for the country in its entirety
as this thing keeps escalating, because
I think you’re getting a widespread perception that
at the very top, corporate salaries in America are too high.
And that is not a good thing for a civilization,
when the leaders are regarded as
not dealing fairly with the institutions
that they head.
WARREN BUFFETT: Yeah. If —
(Applause)
CHARLIE MUNGER: And as for the corporation consultants
who advise on salaries,
all I can say is that prostitution would be a step up for them.
(Laughter)
WARREN BUFFETT: Put him down as undecided.
(Laughter)