Charlie Munger, vice-chairman of Berkshire Hathaway and CEO of Wesco Financial recently spoke with the Los Angeles Times on the issue of executive compensation. As always, the 83 year old Munger provided colorful commentary.

Munger derided compensation consultants, declaring that “I have always said that prostitution would be a step up for these people.” Munger pointed out that the problem was not that CEOs were evil, but that “… envy-driven compensation mania … brings out the abosulte worst in good people.”

Munger points out that legislation is unlikely to fix the problem, citing a 1993 law that aimed to curb compensation above $1 million. He concedes that some CEOs are worth huge packages, but that companies with less talented CEOs are forced to match high pay packages or admit “that the company down the street has a remarkable CEO, but we have a mediocre klutz.”

What should be done to solve this problem? Munger is not afraid to conclude that it my be unsolvable:

Just because something is a serious problem doesn’t mean that you can fix it. There’s an element of tragedy in this because some very good people are acting in some very bad ways. But things are seldom so bad that you couldn’t make them worse by a dumb intervention.

Munger goes on to say that the events of the last several years have gone some way in eliminating “the garden variety of corporate fraud,” but concludes “In my opinion, not enough executives have gone to jail.”

On November 22, after BJ’s(BJ) CEO Mike Wedge abruptly resigned and the stock jumped, I wrote expressing my concerns:

Mr. Wedge’s departure raises troubling questions about the company’s performance. Same store sales have been lackluster of late, but last week’s earnings announcement was ahead of expectations and management expressed optimism regarding Q4. I have a sinking feeling that another shoe may drop before a buyer comes along. Given the 25% runup in the past 2 months, now looks like a good time to follow Mr. Wedge out the door and say goodbye to BJ’s

Today, BJ’s dramatically lowered its guidance for the fourth quarter:

Based on management’s current forecast for fourth quarter sales and margin results and the establishment of the various reserves referred to above, the Company has lowered its earnings guidance for the fourth quarter of 2006 to a range of $.17 to $.25 per diluted share. The Company’s previous guidance for the fourth quarter, issued on November 14, 2006, was for diluted earnings per share of $.83 to $.87.

Eight days after the company provided guidance on November 14, the CEO resigned. Though we can only speculate, it seems reasonable to believe that it was already clear at that point that guidance would not be met. So we now have a pretty good idea of why Mr. Wedge left. The only question is, how many other shoes are in BJ’s closet?

Though the stock closed down 4% today(1/4/06) to $30.55, it still trades above where it was when Wedge resigned. BJ’s continued profitability, valuable real estate and strong balance sheet will continue to place a floor on share prices, but I believe it is below current levels. I sold my BJ’s shares on 11/22 and will continue to stay on the sidelines.
Disclosure: I have no position in BJ