Many CEOs Pursue the Four Ps – Pay, Power, Perks and Prestige Rather than Profits

Recently, there are more and more CEOs falling from grace. In the United States, forced exits accounted for 39% of CEO departures in 2002 up from 25 % in 2001, according to Booz Allen Hamilton. In 2002, Enron Chairman Ken Lay, Tyco chief Dennis Kozlowski, Qwest’s Joe Nacchio, Worldcom’s Bernie Ebbers. Year 2003 saw the departure of CEOs from Raytheon, Kmart, Spiegel, Scherling Plough, Motorola, Freddie Mac, Boeing, American, etc.

Agence France-Presse (AFP) in 13 April 2004 reported that Professor David Yermack of New York University Stern School of Business found that the average shareholder gains underperformed market benchmarks at companies where the chief flies by luxurious corporate jets. In the study, ‘Flights of Fancy: Corporate Jets, CEO Perquisites and Inferior Shareholder Returns’, Professor Yermack said: “The central result of this study is that CEO’s personal use of company aircraft is associated with severe and significant under-performance of their employers’stock. Firms’stock prices drop an average of 2 percent around the date of initial disclosure of corporate plane use.”

Some of the CEOs may not be justifiably fired as the economy turns bad through no faults of theirs’ but they were held accountable. However, the days of fat cats running corporations are over.

Uncontrolled and unnecessary costs destroy businesses. If your competitor has a limo and you do not, you are already winning. He has a leaky bucket. There are six self-made multi-billionaires. And all of them were paragons of simplicity and prudence in self-aggrandisement.

In 1991, Sam Walton founder of Wal-Mart drove an eight-year-old red Ford pickup. He always fetched his own coffee. As President of EDS, Ross Perot paid himself $70,000 a year. However, when Perot sold EDS to General Motors, the President of General Motors, Perot’s new boss, made $2.4 million salary plus a bonus. Finally, he paid Perot $2.5 billion to go away because GM executives were embarrassed by the folksy Perot, who did not demand a fat salary or swanky office or specially tuned cars. David Packard never had an enclosed office before he left Hewlett-Packard for government service. Bill Gates of Microsoft often rode coach on planes, until they finally got so big they ran their own fleet of aircraft. Warren Buffet manages Berkshire Hathaway’s billions and billions with a staff of 24. When they lunch together, it is McDonald’s. Warren still stayed in the same house that he bought thirty years ago and drew on a salary of US 100,000 per annum. Ingvar Kamprad, the founder of Ikea takes the company bus to his stores.

Indeed examples of executive abuses dominated the news during 2002. Many Enron employees were fired whilst Senior Executives used $200,000 to fund its luxury box at the formerly named Enron Field. Though founded on the innovative idea of instant photography, Polaroid’s management failed to save the company from the shift to digital cameras. Polaroid reportedly cancelled health-care benefits for the company’s retirees in the wake of its Chapter 11 filing. However, management reportedly petitioned the bankruptcy court for permission to dole out roughly $19 million in bonuses to keep key executives from leaving. Webvan is another example. It failed to compete against the traditional supermarkets with its online shopping services and home delivery. Before it ceased operations, the company reportedly agreed to pay its resigning CEO, George Shaheen, $375,000 per year for life although the Webvan’s stock price plunged 99 percent during his tenure.

Kmart in bankruptcy authorised payments of $362,000 per month in retirement benefits to some 242 of its executives. The Kmart’s creditors which K mart owed $6 billion protested to a Chicago bankruptcy judge.

L A Times writer John Balzar observed that creditors and shareholders are not the only ones enraged at the seemingly arrogant attitudes of America’s corporate giants. “Consumers are mad, and some are declaring petty war against the mighty corporation, against shenanigans, the double-dealing, the get-rich-quick schemes, the fraud, the selfserving deals.” Those investors felt that they have been robbed as they saw their retirement savings dwindled.

In America, CEOs compensation surged 1000% in three decades, making it to 500 times the pay of the average worker. Yet, they are greedy for more. Martha Stewart of the ImClone System expensed off the US 17,000 cost of a holiday to her company. Dennis Kozlowski spent US$15,000 on a ‘dog umbrella stand’ and US$6000 on shower curtain. John Rigas spent US $20,000 of Adelphia’s shareholders’ funds on a Christmas tree. The list of corporate excesses goes on and on.

CEOs who live ‘fat cat’ lifestyles using corporate funds should be slaughtered and skinned.

Mike Teng
http://www.articlesbase.com/management-articles/many-ceos-pursue-the-four-ps-pay-power-perks-and-prestige-rather-than-profits-98303.html

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