Billionaire investor Warren Buffett said US companies won't regain investors' trust as long as chief executives get compensation, including stock options, that keeps rising while shares of their companies fall.
"What really gets the public is when CEOs get very rich and stay very rich and they get very poor," Buffett told fellow chief executives including Duke Energy Corp's Richard Priory and Bank of America Corp's Kenneth Lewis at a conference on corporate governance in Charlotte.
Buffett's views on responsibilities of executives and directors have gained prominence since last year after accounting scandals at WorldCom Inc and Enron Corp, the two biggest bankruptcies, shook investors' confidence and costs stockholders billons of dollars as shares became virtually worthless.
Regulators and executives, including former Bank of America CEO Hugh McColl, who helped arrange the Charlotte meeting, sought advice from Buffett on topics such as executive pay and corporate governance.
Buffett, 72, the largest shareholder in Coca-Cola Co and American Express Co, was paid US$356,400 in 2001 as chief executive of Berkshire Hathaway Inc, his investment company based in Omaha, Nebraska.
"It is vital that we earn back the trust of the American public," Buffett said. "We will get it back when we deserve it. When I start reading the proxy statements a year from now, I'll know whether American businessmen and businesswomen are serious about wanting to really give back to the system what the system has given to them."
Buffett said he read recently about a chief executive who received no bonus because his company's shares fell last year, though he got options to buy shares "worth US$15, US$20, US$25 million."
He didn't name the chief executive.
"They want the headlines to say they cut the pay," Buffett said. "They are hoping that people don't get to the sixth paragraph of the story. Frankly they should."
Last month, Citigroup Inc Chairman and Chief Executive Officer Sanford Weill told directors he'd forgo a bonus because of a 25 percent decline in the company's share price last year. He got options to buy 1.5 million shares, worth about US$14.5 million, the bank said. With 450,000 options received last year, worth US$5.8 million, and his US$1 million salary, his total compensation last year fell 78 percent from 2001's US$30.3 million.
Directors are at fault, Buffett said, for paying chief executives too much and ceding authority to compensation advisers and CEOs themselves as a "never-ending game" of soaring stock prices in the late 1990s drove pay higher.
"CEOs in America basically drifted," Buffett said, echoing his annual letter to Berkshire shareholders last week. As a director, he said, "You really felt like kind of a jerk if you held out while comp committees and the advisers they hired told you what the CEO wanted them to tell you."
Buffett recalled how he as a director of 19 companies over the past 40 years went along with chief executives who recommended acquisitions Buffett thought were "dumb" and compensation he thought was "unfair."
Challenging a chief executive "is tough to do in a social situation," Buffett said. "It would be like belching at the dinner table, repeatedly."
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