The Lost Decade vs. the Decade of Decadence
Many investors believe we've experienced a lost decade for stocks, and for some, financial returns reflect the reality of a turbulent and often difficult to navigate 10-year stretch. Regardless of whether the last 10 years require a Lost and Found sign, though, there's one group of folks that definitely did not experience a financial lost decade: chief executive officers of major public companies.
Unlike most of us, this "special" group benefits from a peculiar twist that sounds like it was exported straight from Bizarro World while so many regular Americans struggled. They make big-time bank when they hit the exits, and sometimes even rake in millions for failure. For them, the so-called lost decade was a lucrative and decadent blast.
A millennium of madness
GMI, the leading independent provider of global corporate governance ratings, recently released its report on the largest severance packages of the millennium. The report outlined 21 chief executive officers who received golden parachutes that totaled more than $100 million.
The report is full of controversial moments that should catalyze shareholders everywhere to rail against poor compensation policies where CEOs always make out like bandits, regardless of performance.
General Electric's (NYS: GE) Jack Welch tends to elicit a lot of respect for his 20-year tenure, but his severance topped the list at more than $400 million. In addition, his perks -- which raised controversy and which he eventually gave up -- included crazy corporate giveaways such as the use of an $80,000-per-month company apartment in Manhattan; seats to New York Knicks, U.S. Open, Wimbledon, Red Sox, and Yankees games; country club costs; and restaurant tabs.
Viacom's (NYS: VIA) Thomas Freston squeaked onto the list with a goodbye package valued at over $100 million, but here's the rich outrage: He only served as CEO of the media company for nine lousy months.
Some of the examples could be called "double dipping." For example, when Lee Raymond left the helm of ExxonMobil (NYS: XOM) , he not only received a pension but also ongoing vesting of stock options and restricted stock. His total goodbye package: more than $320 million.
In a stunning example of pay for failure, former Pfizer (NYS: PFE) CEO Hank McKinnell Jr. received $188 million for an unsuccessful five-year stint, during which time the company lost $140 billion in market value.
GMI also covered a collection of well-compensated outgoing CEOs who were "paid and stayed." This year, Nabors Industries' $100 million parting payout to retiring CEO Eugene Isenberg became even more mind-blowing upon realization that he isn't even leaving the company; he's staying on as chairman.
The report also highlighted Simon Property Group's (NYS: SPG) revised employment agreement with current CEO David Simon, which obligated him to stay on at his post for an additional eight years and included a massive amount of annual stock grants and a "retention bonus" of more than $120 million. Given the fact that David Simon's the son and nephew of the founders, who the heck would think he was going anywhere?
Stop the decay
Dictionary.com defines the word "decadence" as follows:
1) the act or process of falling into an inferior condition or state; deterioration; decay; 2) moral degeneration or decay; turpitude; 3) unrestrained or excessive self-indulgence.
Somehow our culture has glorified unrestrained, excessive self-indulgence while forgetting that decay (and an inferior state) is at the root of the word decadence. Talk about missing the point.
When chief executive officers are insanely overpaid or paid handsomely for failure, it deteriorates shareholder value. Such states can also be viewed as solid examples of moral and ethical failings by those who give the green light to such plundering. Financially and ethically, there's really no rational justification for many companies' truly decadent compensation policies.
For those who are invested in less upstanding companies, if you're not prepared to sell, then make a lot of noise about compensation problems. Managements and boards must be forced to understand that there's a huge difference between a financially successful company and a financially successful CEO.
Let's avoid another "lost decade" and find solid, well-run companies that pay their executives for performance, not for failure. Haven't shareholders lost enough in CEOs' decade of decadence?
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At the time this article was published Alyce Lomaxdoes not own shares of any of the companies mentioned.Motley Fool newsletter serviceshave recommended buying shares of Pfizer. Try any of our Foolish newsletter servicesfree for 30 days. We Fools may not all hold the same opinions, but we all believe thatconsidering a diverse range of insightsmakes us better investors. The Motley Fool has adisclosure policy.
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