Buffett blasts excessive executive pay
Trade deficit, rising money-management fees also a worry
marketwatch.com
Berkshire Hathaway Inc. Chairman Warren Buffett used his latest annual letter to shareholders to blast excessive executive pay, a ballooning U.S. trade deficit and rising fees for professional money managers.
"Too often executive compensation in the U.S. is ridiculously out of line with performance," said Buffett in his 2005 letter. See full text of Buffett's letter.
Buffett said the problem lies in the way executive compensation is decided.
"Huge severance payments, lavish perks and outsized payments for ho-hum performance often occur because comp committees have become slaves to comparative data."
Buffett said compensation committee members are bombarded with pay statistics and told about new perks that other managers are receiving.
"In this manner, outlandish 'goodies' are showered upon CEOs simply because of a corporate version of the argument we all use as children: 'But, Mom, all the other kids have one.'"
The billionaire investor, known as the Oracle of Omaha, also had a few choice words for rising fees paid out to professional money managers.
"These costs are now being incurred in amounts that will cause shareholders to earn far less than they historically have," said Buffett.
He added that these fees may cause equity investors to earn "only 80% or so of what they would earn if they just sat still and listened to no one."
Buffett reiterated his concern over U.S. trade imbalances.
"Not only did our trade deficit - the largest and most familiar item in the current account - hit an all-time high in 2005, but we also expect a second item- the balance of investment income - to soon turn negative."
As foreigners increase their ownership of U.S. assets relative to U.S. investments abroad, Buffett said these investors will begin "earning more on their holdings than we do on ours."
Buffett said the U.S., as a rich country and one that is likely to growth wealthier in years to come, will be able to handle these imbalances without their having a "noticeable deleterious effect on the U.S. economy or on markets."
"I doubt, however, that the situation will remain forever benign. Either Americans address the problem in a way we select, or at some point, the problem will address us in an unpleasant way of its own."
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