Buffett A-Z

CEO pay: 'The system feeds on itself'

Thu, May 3 2018 • 7:18 PM EDT

Warren Buffett and Charlie Munger have a reputation for being tightfisted, but they don't mind paying big money to managers who deserve it. The problem, they say, is the game is rigged so that most CEOs of big corporations are getting enormous paychecks no matter what they do (or don't do.)

1998: Buffett "bothered when average managers take really large sums"

Warren Buffett is fine with rewarding great managers with high salaries, but says he thinks it's "obscene" when mediocre ones are paid too much.

2003: Berkshire has "a very simple system" on compensation

Buffett criticizes how determining CEO compensation has become an industry and says Berkshire managers get good results because, above all, "they like hitting .400."

2004: Management wants "chihuahuas that have been sedated"

Buffett and Munger say executive compensation ratchets up so easily because company directors act like they're dealing with "play money" when making decisions, and CEOs like it that way.

2008: Institutional shareholders need to stand up

Buffett says institutional shareholders are the only ones with the power to speak out against "egregious" executive compensation, and that it would just take "a few of the biggest ones" to change the system.

2009: "I don't think there should be a comp committee"

Buffett and Munger say companies should do away with compensation committees and instead rely on their directors to make executive compensation decisions.

2010: Different businesses, different compensation systems

Buffett and Munger say there are "enormous differences in the economic characteristics of our businesses," so there are different compensation plans for CEOs of Berkshire's subsidiaries.

2014: CEOs don't think "I should get paid less"

Buffett argues there are unintended consequences of requiring compensation disclosures.

2016:  "You don't want to award profits alone"

Buffett and Munger explain why it's "dumb" to have an executive compensation system that only provides an incentive to increase short-term profits.