Executive Salaries - Beware of Con Men

You know what gets me hot under the collar nowadays? The daily barrage of news regarding obscene executive salary packages and Golden Handshakes at a time when most shareholder wealth has halved. At a time when your average mom and pop wishing to retire can do so no longer and may have to drag their poor selves back into the work force to 'make ends meet' (that is if anyone is willing to hire them), we see and hear of executives paying themselves fat bonuses. And you know what gets me even hotter? Some of these 'business leaders' even in the face of strong public sentiment against excessive salaries and irrefutable evidence that some of these executives are not worth the toilet paper they use to clean their executive arses, still insists that high executive salaries are justified. "Oh if you don't pay the best, you don't attract the best", "Oh it's not that easy to put a cap on executive salaries, there are many factors that need consideration" yada yada yada....

Before these so called leaders of business start yaking more and show how detached from reality they are, have they asked themselves that it is these 'talents' that got these companies in the mess in the first place. So they are paying for the best? Look at Telstra where the CEO and his henchmen are walking away with millions of shareholder dollars after wrecking one of Australia's biggest companies. They have not achieved what was set out from the onset and they have put Telstra in the worst position possible in recent memory. And they leave the company with a hefty bonus, how nice. If ever there was a case of executives blatantly taking a company for a ride, this had to be a prime example. What is the moral of the story? Failure pays and the sad thing is the Telstra board are still justifying the payouts. These guys are from a different planet!

How about the sorry tale of the third largest mining company in the world, Rio Tinto? Now Rio Tinto projected that the 'China phenomenon' was going to elevate the company beyond the realms of our stratosphere. They were overly bullish on China, to the extend that they added a few zeros to the government's forecasts. Their growth graph looked to be something not unlike a parabola. Was a China or world slowdown so inconceivable that no one even bothered to ask what if it happened? Obviously not, as they went on to accumulate an uncomfortable level of debt, hoping to apply the 'Macquarie model' that debt is good. When economy turns to shit like it did, the company got in trouble and their employees, most of whom had no involvement whatsoever in making those bad decisions in the first place, were the first ones to go. No surprise, the CEO gets to keep his job to go on another day to make more bad decisions. My friend once told me, that during boom times, you could put a monkey in the CEO position and there is a high chance of it outperforming and it is during the bust times that we see how good these executives are, and sadly the conclusion is not very good.

Now I can go on to give more examples of executive excesses and corporate stuff ups, but I'm afraid that would take all night to write about (and it's now 1.05am) as there are so many. AIG, Citi Group, Bank of America are just three examples of the worst of the worst cases. Citi Group bought a 45 million corporate jet after getting bail out money from the US government and came out with an excuse that it was a contract entered before the crisis and 'bailing out' of the contract would cost them money. Well how much would it cost them to not honour the contract? Even if it's $44,999,999.99, they should not go ahead with it as it's still cheaper to pay the penalty than to go ahead with the purchase. I'm sure many would remember the auto executives going to Capitol Hill asking for a handout in their private jets. Well enough said. You get the point and I did say I would not give any more examples as it would be too long to do so (as though it isn't already too long but what can I say, I'm pissed off).

Now my conclusion as to why we see these kinds of stuff ups in the corporate world happen time and again bores down to greed and the short term objectives taking precedent over long term objectives. As long as they get their fat checks and more who cares about the long term care of the company. Warren Buffet they are not. Even after dropping by half, Warren Buffet's Berkshire Hathaway's share costs about $75,000 (US dollars) each, while Citi Group is about a dollar. As long as they can go back to their million dollar mansions at millionaires row, who cares about the shareholders? Con Men? you ask. Definitely in my opinion.