What's a CEO Really Worth?

What's a CEO really worth?


Not much, if you consider the global economic melt down we are all experiencing. All that CEO compensation paid out... for years... for what? We were told that these guys were the smartest people in the room... real corporate brainiacs. So... stockholders doled out millions for compensation. For what? For the "privilege" these days of asking for a government bailout?


Let me see if I have this straight...

These guys walked away with millions every year, supposedly because they knew more than anyone else. But they didn't. Not that THAT stopped them from keeping their princely pay packages.


So we have a global economy wrecked, and household name firms in economic tatters.


Today comes a great article in the New York Times by Andrew Ross Sorkin entitled "Putting a Value on a CEO". Must reading!


Key comments...


What, then, should Citigroup pay Vikram S. Pandit, its embattled chief executive? On his watch, Citigroup, hobbled by bad investments, grabbed not one but two financial lifelines from the government. Its share price plummeted about 80 percent. (In fairness, he took the reins of the firm less than a year ago.)

By most standards, Mr. Pandit is rich already: he made $800 million by selling his hedge fund to Citigroup (he later shuttered it). 

[Dan's comment: Doesn't this mean that CitiGroup paid  $800 million for nothing? What idiot approved that deal? Haven't they ever heard of an "earn out"? And now this same CEO has managed to depress share value by 80%? But I digress... ]

 

[Dan's Comment: You can listen to Vikram Pandit explain to you why all this happened... in a Charlie Rose interview. ]



“What has caused the most outrage is the difference between pay and actual performance,” said Lucian Bebchuk, the director of the program on corporate governance at Harvard Law School. 

Sarah Anderson, a director at the Institute for Policy Studies, is an advocate of aggressive pay curbs and isn’t likely to buy into an eight-figure income, no matter what the performance.
“I want taxpayers to feel confident that an unreasonable amount of money isn’t ending up in their pockets,” Ms. Anderson said of the executives. “This may be the time to inject some sanity into the pay system.”
That may be so. But Mr. Pandit and others — to the extent you believe they are the right leaders of Citigroup — or whoever takes their roles are unlikely to hang around if they’re not amply paid.

[Dan's comment: Is that really such a bad thing? Can't we find SOMEONE who is competent, at a fair level of pay? After all, the President of the United States, the leader of the entire free world, commander-in-chief with hundreds of nuclear weapons, makes only $400,000 a year... and there is always a long line of talented people that want the job. ]


“If I’m in Kansas and losing my house, I think it’s madness to pay them a big bonus,” Mr. Alan Johnson, managing director of Johnson Associates, a compensation consulting practice based in New York said. “Vikram has to take one for the team this year.”


So here’s another idea that might prompt executives to keep a closer eye on the risks that their bankers and traders take: have executives invest in their own firms on the same terms as we taxpayers. And for good measure, have them invest in the financial products that their companies sell. If executives had put their own money into the tricky mortgage investments that their banks were selling, they might have asked hard questions from the start.

[Dan's comment: This is good advice from a seasoned observor! But I genuinely doubt that the Wall Street crowd will go for it... unless it is imposed upon them. Don't hold your breath! ]