Published in CommPRO.biz 2013.07.18

Chasing the Bucks

If we are to believe the most successful investor of our time, the most important goal for any company is long-term growth. Why then do the directors of company after company follow a short-term path? Why would anyone focus on quarterly results? How many Americans watch the stocks in their 401Ks or other market packages rise and fall quarter to quarter? Why? Unless you are almost ready to hang up your spurs and retire, why do quarterly numbers even interest you? It’s the long term results that will support you one day, that’s the Warren Buffett way.

The only people who benefit from the quarterly rat race are those who collect fees from every trade. Trades and fees that reduce your nest egg, how does that make sense? This madness extends to the outrageous compensation levels “C Suite” occupants score these days. This, in spite of evidence that sky-high pay does not focus executives on the long-term health of a company; it focuses them on their paycheck and ways to fatten it up. Management guru Jim Collins pointed out in a USA Today piece a decade ago that leaders do not create great companies for a paycheck; they create great companies because they can. True then, true today.

A recent New York Times article on “C Suite” compensation notes that three Oracle executive’s compensation ranks them among the top five CEO paychecks. Among the top 200 CEOs the software company founder Larry Ellison is number one. His two Co-Presidents Safra Catz and Mark Hurd both have earnings that would put them into the top five if they were CEOs. Hurd, ousted from Hewlett Packard where he carried on the slash and burn route to profitability that his predecessor Carly Fiorina established. She was canned when her ham-handed style dragged this once great company down. Hurd collected over twelve million dollars on his way out the door for his role in destroying HP. For his leadership at Oracle Ellison saw his pay jump by a quarter last year. However, his shareholders suffered an almost equal decline. How does that make sense?

“C Suiters” should be well compensated, compensated for long-term strategies like research and development and real growth. Oracle Co-President Safra Catz lists 85 acquisitions completed within five years as an accomplishment. That is a strategy often followed by those looking to improve their quarterly gains. While acquisitions make sense when they fit, often they do not and can lead -as they did under Carly Fiorina at HP- to chaos and corporate decline. 

Flashy, pricy, “C Suiters” do not make companies great. Anytime their pay scale runs more than forty times the wage of the lowest paid worker in the company it’s way high. Today we have “C Suiters” routinely collecting a hundred, even as much as a thousand times their lowest paid worker’s take home. That’s just outrageous. It makes no sense as a business plan and it is ethically disgusting.