The oracle of Omaha speaks out against overpaid CEO's
Buffett Says Some Major CEOs Are Overpaid
The Associated Press
May 4 2003 10:14AM
OMAHA, Neb. (AP) - Chief executives of some major companies are overpaid, according to Warren Buffett, the investment wizard who turned Berkshire Hathaway into a multibillion-dollar holding company.
And at a time of criminal investigations of corporations such as Enron, Buffett cautioned stockholders Saturday to give careful attention to company financial reports.
``If I can't understand it, the management probably doesn't want me to understand it. And if management doesn't want me to understand it, there is probably something wrong going on,'' he said at the company's annual stockholders' meeting, which he has called ``Woodstock for Capitalists.''
The meeting comes about two months after Buffett filed the company's own annual report, which said earnings per share for the period ended Dec. 31, 2002, were up 436 percent to $2,795 from $521 per share in 2001. Net worth grew by $6 billion last year, a dramatic increase from the $3.77 billion loss in value the year before.
Buffett, the chairman of Berkshire Hathaway, said the consumer businesses the company holds had lower earnings in the first quarter because of the struggling economy.
``I really think we've been in a recession now for over two years,'' Buffett said, but he added the recession has not been a major one.
Berkshire owns businesses and stock in a wide variety of industries, including furniture, restaurants, candy, insurance and newspapers.
Asked by a shareholder to comment on the compensation given to chief executives of major companies, Buffett said the amounts paid have been much too high. He also said stock options offered by many companies are unfair because they can compensate poor executives during good years and can hurt good leaders during bad years.
When Berkshire purchased insurance company General Re, it inherited a stock option system that had General Re executives benefiting from the wider success at Berkshire - even as General Re struggled, Buffett said.
``That's not an indictment of General Re, but an analysis of an option system that's like a lottery ticket,'' he said.
Some have called for corporate reform to include more diversity on boards of directors, but ``what happens with compensation is the acid test of reform,'' Buffett said.
Rules are likely to go into effect within the next year aimed at improving the independence of corporate boards that will require adding four people to Berkshire's seven-member board, Buffett said.
Berkshire will choose people who have large holdings in the company and business savvy, Buffett said.
``We'll have people who have a lot of money on the line, like you do,'' Buffett said.
Buffett defended the nation's Social Security system as a promise of base level subsistence upon retirement to people who have contributed to society. It would not be wise to direct some of those funds into the vagaries of the stock market as a way to bolster the system, Buffett said.
``A lot of people thought it was a good idea a few years ago,'' Buffett said. ``I think it's a very bad idea, frankly.''
Among the shareholders at Saturday's meeting was Disney chairman Michael Eisner.
``It's always invigorating. They make things sound very clear and very simple, which, of course, it is not,'' Eisner said.
AI
