[Executive compensation] committees substantiate their decisions in a fashion that outlines plausible deniability, not merit, value or truth. They do not reflect shareholders, employees, or customers best interest. They reflect a tight knit group that has to pay and pay big so that they can get theirs in the next round.
This brings me to the National Basketball Association and its use of the salary cap. We just witnessed an NBA finals where the better team won (Boston Celtics in six games) and that is the nature of the game. It’s five on five, the best player does not take every shot and the best player cannot defend the other team by himself.
It is free agent season in the NBA and teams are making their moves to lock up talent for next year and beyond. The right player can have much more of an impact on a basketball team then most CEOs (Buffett, Gates, and Jobs not withstanding), yet there are limits to compensation.
Now my favorite quote of the week. “What can I do for my family with $127 million that I can’t do with $111 million?” asked Gilbert Arenas. One [of] the top free agents in the NBA agreed to re-sign with the Washington Wizards for $111 million over six years, forfeiting millions of dollars so that his team could have more financial flexibility in signing other teammates.
We know that many company boards do not know what they are doing because we have just witnessed many fire their CEOs for major failures in leadership. They too have failed, because they overpaid these guys when they were employed, did not do a very good job of oversight, and then overpaid again when they gave them the boot.
I can’t wait to see how much Bob Nardelli is going to receive for overseeing the bloody dismemberment of Chrysler.
I must point out, though, that the Celtics outspent the Lakers on salaries in 2007-08, and that both teams were well over the NBA’s rather flexible salary cap, which last year was $55,630,000. (Last year Boston’s Kevin Garnett was the highest-paid player in the league; the Lakers’ Kobe Bryant was fifth; Arenas was down around 40th.)
This idea, though, deserves some consideration:
If they really had a clue they would seek out the top 100 senior vice presidents and store managers and young rising stars instead. They could also reward shareholders with dividends and save some cash for a rainy day. There is no telling the good that can be done with the wasted money thrown at overbloated, egotistical executives that in many cases have been compensated beyond any rational amount.
Don’t hold your breath waiting for it to happen, though.