A Few Lessons for Investors and Managers From Warren Buffett by Peter Bevelin & Warren Buffett

Author:Peter Bevelin & Warren Buffett [Bevelin, Peter & Buffett, Warren]
Language: eng
Format: epub
Tags: Wisdom, Financial, Investing, Managerial, Lessons
ISBN: 9781578647453
Google: _LGhMwEACAAJ
Amazon: 1578647452
Publisher: PCA Publishing, Riddler
Published: 2012-01-01T18:30:00+00:00

At Berkshire, we believe in Charlie's dictum — "Just tell me the bad news; the good news will take care of itself" — and that is the behavior we expect of our managers when they are reporting to us. (1995)

Eleven

Management Compensation:

I Get What I Reward For

Management and owners should have the same interest

What is best for their owners is not necessarily best for the managers.

Fortunately Charlie and I have both total job security and financial interests that are identical with those of our shareholders. (1989)

Work with people who make money with owners and not off them

We have no interest in large salaries or options or other means of gaining an "edge" over you. We want to make money only when our partners do and in exactly the same proportion. (An Owner's Manual)

Since I have a huge percentage of my net worth committed for life to Berkshire shares — and since the company will issue me neither restricted shares nor stock options—my gain-loss equation will always match that of all other owners. (1993)

There should be no rights without responsibilities and no carrots without sticks

The people who make the decisions should be accountable for the consequences and face both the downside as well as the upside

In our book, alignment means being a partner in both directions, not just on the upside. Many "alignment" plans flunk this basic test, being artful forms of "heads I win, tails you lose." (1994)

CEOs and, in many cases, directors have long benefitted from over-sized financial carrots; some meaningful sticks now need to be part of their employment picture as well. (2009)

Make sure incentives are tied to the same variables that determine value for owners

At both General Re and its Cologne subsidiary, incentive compensation plans are now directly tied to the variables of float growth and cost of float, the same variables that determine value for owners. (1999)

And tied to the result of the area the manager is responsible for and can impact

When we use incentives...they are always tied to the operating results for which a given CEO has authority. We issue no lottery tickets that carry payoffs unrelated to business performance. (2006)

We compensate Ralph Schey based upon the results of Scott Fetzer rather than those of Berkshire. What could make more sense, since he's responsible for one operation but not the other? A cash bonus or a stock option tied to the fortunes of Berkshire would provide totally capricious rewards to Ralph. He could, for example, be hitting home runs at Scott Fetzer while Charlie and I rang up mistakes at Berkshire, thereby negating his efforts many times over. Conversely, why should option profits or bonuses be heaped upon Ralph if good things are occurring in other parts of Berkshire but Scott Fetzer is lagging? (1994)

Arrangements that pay off in capricious ways, unrelated to a manager's personal accomplishments, may well be welcomed by certain managers. Who, after all, refuses a free lottery ticket? But such arrangements are wasteful to the company and cause the manager to lose focus on what should be his real areas of concern.

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