September 25, 2022

Excessive Compensation Bad for Investors

Chuck Moore says “I think this is obscene. It is not just this one but hundreds like this case. Does this come from stockholder equity?” What’s got his goat? This:

Pfizer Inc.’s former chief executive, Henry A. McKinnell’s “involuntary” retirement package, which the company disclosed in a filing with the Securities and Exchange Commission Thursday, totals more than $180 million. It includes an estimated $82.3 million in pension benefits, $77.9 million in deferred compensation, and cash and stock totaling more than $20.7 million.

You’re damn right it’s obscene. There’s nothing that McKinnell could do that would be worth that large of a payout, even if he was still working there. But considering that he presided over “a drop of as much as 40 percent in the company’s stock price during his five years in charge”, I’d say that the cash-gouging is particularly egregious. Pfizer’s board of directors must be humming along to the tune of the three blind mice! Talk about your dereliction of duty…

Now consider the case of Sirius Satellite Radio, which paid XM radio loudmouth Howard Stern a bonus worth nearly $83 million for surpassing subscriber goals set in his 2004 contract that called for a $500 million compensation package. Sirius Chief Executive Mel Karmazin said:

“The decision to bring Howard Stern to Sirius required a very significant commitment and we are very pleased that our investment has dramatically paid off.”

Sirius said…that expenses related to the payment have been reflected in operating results throughout 2006. Like Pfizer, Sirius’ stock has also shed more than 40 percent of its value in the last year, compared with a 10 percent rise in the Standard & Poor’s 500 Index.

One difference between the companies’ situations is that XM radio is a new, growing market; losses are an investment in such an environment, as are high salaries for so-called “talent”. Another is that there is a purpose behind Pfizer’s business beyond mere entertainment whereas Sirius really ought to be chagrined at having anything to do with a buffoon like Stern.

In both cases, I’m glad I’m not an investor.

marc

Marc is a software developer, writer, and part-time political know-it-all who currently resides in Texas in the good ol' U.S.A.

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