Davos Newbies

An interview with Charlie Munger, Warren Buffet’s long-time business partner, was published by the Los Angeles Times on New Year’s Day. After the Home Depot abomination, Munger speaks tremendous sense:

What makes CEO pay so difficult is that only a few of the people who are earning these huge amounts are actually worth it. Everyone else figures they have to keep up or recognize that their guy isn’t as good. Who wants the recognition that the company down the street has a remarkable CEO, but we have a mediocre klutz?

I like the idea of high pay for people who are really worth it. The problem is that most of them are not. Every mediocre employee who rises through the ranks to become CEO thinks he should retire rich. It’s crazy.

Munger also reckons that any hope of improving the situation will be hard won. He has a very dim view of a lot of American executives: “In my opinion, not enough executives have gone to jail.” (Via Kevin Drum)

The resignation of Bob Nardelli as CEO of Home Depot suggests that widespread public opprobrium does sometimes reach the executive suite in US businesses. Nardelli was hailed in some areas for his cultural transformation of Home Depot. The influential Ram Charan described Nardelli’s work in the April 2006 Harvard Business Review in thoroughly laudatory tones.

But other observers weren’t so happy. The New York Times brutally exposed the gap between the company’s share performance and Nardelli’s personal rewards in May. (The always-excellent Felix Salmon took me to task at the time for suggesting that share price should be the measure of a CEO’s performance. Fair enough. But Felix and I agreed that by any measure Nardelli’s compensation was outrageous.) In the ensuing flap, Nardelli led an annual general meeting that was Stalinist in its suppression of dissident views. It’s a sign of how insulated US executives are that it has taken over seven months from that fiasco for Nardelli to go.

When I wrote about Nardelli before I hoped that “a reaction against the contemptuous and arrogant behavior of chairman and CEO Robert Nardelli will be a turning point in the outrageous rewards grabbed by so many corporate chieftains in the US”. I was pessimistic, but maybe the worm is turning. By the way, don’t feel too sorry for the guy. His leaving package amounts to $210 million.