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.”