Pathetically in Denial: AmEx CEO Chenault's 2001 compensation is an outrage
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Article date: 04/10/02
Thomas Brown
Director, bankstocks.com
tbrown@secondcurve.com
“On an absolute basis, we are disappointed with our 2001 results,” American Express’s CEO Ken Chenault writes in his annual letter to shareholders, “Our relative performance, however, was generally in line with that of our competition, particularly diversified financial companies and financial services firms.”
Er, Ken . . . hello! Your appraisal of American Express’s performance last year can only be described as delusional. The company’s numbers last year weren’t just absolutely lousy; they were lousy when put alongside the premier “diversified financial companies and financial services firms” you like to compare AmEx to. Thus while American Express’s net dropped by more than half last year, Citigroup’s earnings jumped by 4%, MBNA’s rose 25%, and Capital One’s increased 30%.
Ken Chenault’s ability to kid himself at the expense of shareholders is bad enough. But the real scandal is the highly dilutive fantasyland that AmEx’s Board of Directors seems to be in. Believe it or not, the Board rewarded Chenault’s stinko performance last year with a pay package worth—hold on to your hats!--$31 million of shareholders’ money!
Egad! Who in his right mind believes that Ken Chenault deserves $31 million ($5.9 million cash, $8.3 million stock and $17 million stock options) for a year in which every single number that mattered was a disaster? And the numbers were a disaster, across the board: Revenues fell 3%, earnings per share dropped 53%, and stock price sank by 35%.
The Board’s rationalization for such a wholesale fleecing of shareholders can only be described as “lame-brained:” “While the company’s 2001 financial performance fell short of its long-term objectives [You can say that again! –Ed.] the committee used its judgment about each individual’s annual goal and leadership performance to make discretionary awards.”
They’ve got to be kidding! It’s incredible to me that after the year that American Express had, and with the challenges that the company faces, that the Board would see fit to enhance Ken Chenault’s compensation! If this company ever has a really good year under Chenault, this Board is liable to give him the whole company.
And please don’t tell me American Express was hurt more than most companies by 9/11. Don’t forget the $830 million junk-bond writedown last July, an episode in which top management essentially admitted that it didn’t know what it was doing. And don’t forget, either, the fact that asset inflows at American Express Financial Advisors have lagged for years, particularly compared to the flows at key competitors Charles Schwab and Merrill Lynch. (While we’re on the topic, both Schwab and Express had huge layoffs last year; only Schwab’s top management had the honor and decency to forego cash compensation.)
For years American Express had a star position in the pantheon of global financial services firms. No longer; the problems at the company go way beyond 9/11, and way beyond the recent recession. The company is broken. Perhaps worse, is that the company’s management and the Board have yet to even recognize a problem exists.
I think you will see the popular press start to discuss the troubles at American Express much as they are currently doing at GE, IBM, and other corporate icons. Investors in Express will most likely be disappointed over the next few years.
American Express shareholders beware; you own a broken growth company with a CEO in denial and a Board of Directors asleep at the switch!
What do you think? Let me know!
/TKB/
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Key words and companies mentioned: American Express, AXP, Ken Chenault
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