Personal Finance > Investing
Buffett: Do as I say, not as I did
America's favorite billionaire is railing about CEO pay. What took him so long?
May 5, 2003: 5:12 PM EDT
By Gordon T. Anderson, CNN/Money Contributing Writer

NEW YORK (CNN/Money) - When Warren Buffett launched his latest campaign against excessive CEO pay, he first anticipated an inevitable question: how has Buffett's own record been on this issue? "Not so good," was his answer.

Indeed, in his 2003 letter to shareholders Buffett reflects on the fact that he's served on 19 corporate boards since the 1960s. In boardroom environments in which "collegiality trumped independence," he notes, challenging a CEO's compensation package "would be like belching at the dinner table."

"My own behavior, I must ruefully add, frequently fell short," confesses Buffett. "Too often I was silent."

Berkshire's largest holdings
Company (ticker)†Shares†Value†
American Express (AXP)151,610,700†$5.4 billion†
Coca-Cola (KO)200,000,000†$8.8 billion†
Gillette (G)96,000,000†$2.9 billion†
H&R Block (HRB)15,999,200†$643 million†
M&T Bank (MTB)6,708,760†$532 million†
Moody's Corp. (MCO)24,000,000†$991 million†
Washington Post (WPO)1,727,765†$1.3 billion†
Wells Fargo (WFC)53,265,080†$2.5 billion†
†values as of 12/31/2002
†Source:††Berkshire Hathaway

Now, however, the Sage of Omaha is speaking up. Excessive CEO pay was a central theme at the Berkshire Hathaway shareholder meeting this past weekend.

Buffett has complained before. "If able but greedy managers over-reach and try to dip too deeply into the shareholders' pockets," he wrote in his 1993 letter, "directors must slap their hands."

Today, Buffett admits his past observations fell on deaf ears, including his own. "Over-reaching has been common but few hands have been slapped," his latest letter notes.

It's unclear, of course, whether directors will become slap-happy now.

There are dozens of companies within the Berkshire Hathaway portfolio (see chart). Here is the remuneration rundown on a few of them:

  • CocaĖCola classic In the late 1990s, cancer forced long-time CEO Roberto Goizueta to step down. His successor, Douglas Ivester, was forced out after barely two years, but the board eased his pain by giving him an $8 million "consulting" contract, immediately vesting 2 million shares of restricted stock, and awarding an additional $675,000 a year for life. By some accounts -- because stock and options were involved, a precise number is tricky -- Ivester's take for leaving came to $100 million (including a $30 million pension built up over a three-decade career at the company).
  • New Coke The man who replaced Ivester, current CEO Douglas Daft, received a performance-based incentive grant of 1 million shares of restricted stock in 2001, then worth about $60 million. A few months into the performance period, it became clear that the company had little chance of meeting the targets set out for Daft. So, Coke's directors lowered the targets substantially.

"This is irresponsible behavior," says compensation expert Paul Hodgson of the Corporate Library, a corporate governance clearinghouse. "Buffett should have voted against this."

This year, Coke announced that Daft's salary remained stable at $1.5 million, at the CEO's request. Daft's bonus, however, rose 14 percent to $4.5 million, despite the fact that Coke missed sales targets last year and its stock hovers near a seven-year low.

Buffett has been a Coca-Cola director since 1989.

  • Gillette Current boss James Kilts has been called a CEO of the crusty, old-style variety, and received $2.75 million in salary and bonus, up from $2.2 million he received the year before. He also received stock options worth more than $7 million, according to the company, which puts the total theoretical value of his more than 3 million options at around $29 million.

Kilts' comparatively modest compensation may have something to do with Gillette's board atoning for past sins. When it fired the last CEO, Michael Hawley, the company cushioned the blow with $8.7 million in termination fees. For added measure, it set Hawley's lifelong pension scheme according to his higher, post-separation compensation package. (Thereby increasing the pension payout, as well.)

Buffett has been a Gillette director since 1989.

  • Wells Fargo CEO Richard Kovacevich received the same salary in 2002 as the year before, $995,000. But his bonus nearly tripled, rising from $2.4 million to $7 million. The stock didn't do nearly so well, rising about 7 percent during the year. Wells Fargo also granted Kovacevich 865,330 options, on top of the 1.1 million options he got last year. At the close of 2002, according to the firm's proxy statement, the CEO's 3 million exercisable options were worth nearly $43 million.

Buffett is not a director of Wells Fargo, but Berkshire Hathaway owns quite a bit of stock in the bank, about $2.5 billion worth.

  • American Express. Since Kenneth Chenault became CEO of American Express, the stock has lost some $17 billion in value, and has never come close to reaching the $54 a share price it hit on the day he took over. Still, Chenault's doing all right: In 2002, he made about $20 million -- nearly twice what the CEOs made at larger financial services rivals JP Morgan Chase and Citigroup.

Although Buffett is not a director of American Express, Berkshire Hathaway is its largest shareholder with an approximate 11 percent stake.  Top of page

Danger ahead? Investors turn wary
Finding good advice
Investor confidence continues to slide
The Fed has a lot to talk about besides higher interest rates
Dunkin' Donuts is officially dropping 'Donuts'
Why investors aren't freaking out about inflation

graphic graphic