Buffett Says Pay-Disclosure Rules Can Hurt Investors
Warren Buffett, the world’s third-richest man, said requiring disclosure of more executives’ salaries could hurt shareholders.
Managers who find that their colleagues make more may become jealous and press for higher awards, Buffett said yesterday at the annual meeting of his Berkshire Hathaway Inc. (BRK/A) in Omaha, Nebraska.
“That’s a good reason for us not publishing the salaries of, say, our top 10 managers,” Buffett said. “It’s very seldom that publishing compensation accomplishes much for the shareholders.”
Buffett was responding to a question about whether Berkshire, where he’s chairman and chief executive officer, would disclose the pay of more executives. Publicly traded U.S. companies must reveal certain compensation information in filings with the Securities and Exchange Commission, and some state insurance regulators collect pay data.
Berkshire’s energy business said in its most recent annual report that Greg Abel, the CEO of the unit, got $10.7 million in compensation last year, including a $9.5 million bonus and $1 million base salary. Buffett, who has a net worth of about $65.6 billion, takes a $100,000 annual salary, as does Vice Chairman Charles Munger.
The top-paid U.S. CEO last year, Cheniere Energy Inc.’s Charif Souki, received $142 million, according to data compiled by Bloomberg. His compensation included a $133 million stock award that vests as the Houston-based natural-gas exporter achieves financial and operational goals.
Buffett, who is Berkshire’s largest shareholder, said company leaders as a group would see their pay decline if compensation data were kept private.
“No CEO looks at a proxy statement and comes away saying, ‘I should be paid less,’’ Buffett said. ‘‘American shareholders are paying a significant price because they get to look at that proxy statement each year.’’
Compensation has come under scrutiny for fostering risk-taking and amid worsening inequality. The Financial Crisis Inquiry Commission said in 2011 that stock-option bonuses motivated financial firms to use leverage to boost returns.
Buffett said compensation disclosures led to trouble when he was interim chairman and CEO of Salomon Inc. in 1991 and 1992, as the firm worked to recover from a Treasury debt auction scandal.
Almost everybody was dissatisfied with what they were getting paid at Salomon ‘‘because they looked at somebody else in the place and it drove them crazy,’’ Buffett said yesterday.
Munger said at the meeting that disclosing compensation contributes to a ‘‘culture of envy in America.’’
Thomas Piketty, the French economist whose research on wealth distribution helped inspire protests against Wall Street, published ‘‘Capital in the Twenty-First Century,’’ arguing that inequality will worsen. The book was the No. 3 nonfiction best seller in the week ended April 26, according to the New York Times.
Congressional Democrats have made income inequality a central element of their election-year agenda. U.S. Senate legislation to boost the minimum wage to $10.10 an hour from $7.25 was blocked by Republicans last week.
The SEC proposed in September that public companies provide more information about CEO pay. The commissioners voted 3-to-2 to seek comment on a requirement that businesses disclose the ratio of CEO compensation to median worker pay.
‘‘Irrational and excessive comp practices will not be materially changed by disclosure or by ‘independent’ comp committee members,’’ Buffett wrote in a 2007 letter. ‘‘Reform will only occur if the largest institutional shareholders -- it would only take a few -- demand a fresh look.’’
Buffett has taken criticism for not doing his part to rein in compensation, after he abstained last month from voting on a pay plan at Coca-Cola Co. that he opposed. The billionaire told Bloomberg Television’s Betty Liu, ‘‘I could never vote against Coca-Cola, but I couldn’t vote for the plan either.”
Buffett said yesterday that he had a private conversation with Coca-Cola CEO Muhtar Kent, rather than rebuke the firm publicly. Berkshire is the largest owner of the soda-maker’s shares, and Buffett’s son sits on the firm’s board.
“We made a very clear statement about the excessiveness of the plan and, at the same time, we in no way went to war with Coca-Cola,” Buffett said at the meeting. “I don’t think going to war is a very good idea in most situations.”
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