The low point in the federal response to Hurricane Katrina had to be on the Friday following the disaster. As many observers looked on in dismay, President Bush actually praised Michael Brown, who was then the head of the Federal Emergency Management Agency (FEMA). As he toured the devastation, the president declared, "Brownie, you're doing a heck of a job."
Actually, most Americans didn't think he was doing a "heck of a job." Why is it that our government and business leaders are often so forgiving of the failure of their fellow executives?
One need only look at America's boardrooms to see underperformance rewarded with sums that would make a sultan blush. Consider Blockbuster (NYSE: BBI ) Chairman and CEO John Antioco. Over the past two years, Blockbuster's share price has declined by more than 65%. Obviously, competition from Netflix (Nasdaq: NFLX ) has placed the company under pressure. You would expect that this would be a time for some belt-tightening, no? While there have been more than a few layoffs, Antioco has done quite well for himself. According to data provided by Capital IQ, Antioco earned compensation of around $30 million in fiscal year 2004. Earlier this year, Blockbuster estimated that Antioco's severance package would be $54 million if he chose to resign. Obviously, he spent more time negotiating his contract than he did thinking through that "no late fees" ad campaign.
Perhaps he received advice on negotiating his severance package from former Fannie Mae (NYSE: FNM ) CEO Franklin Raines. Raines, whose tenure coincided with allegations of accounting irregularities, was eventually forced to resign back in December 2004. So maybe our business leaders aren't so forgiving after all. Poor Raines was shown the door and forced to make do with a monthly pension of $114,000 for the rest of his life! Heck of a job, Frankie!
Ultimately, America's CEOs appear to win when they win and win when they lose. My outrage meter spun out of control earlier this year when it was floated that Carly Fiorina, whose performance at Hewlett Packard (NYSE: HPQ ) was strikingly underwhelming, might be appointed to head up the World Bank. What would she have been offered had she succeeded? The Papacy?
Despite the efforts of some shareholders, like our own Tom Gardner, to exert greater influence over the management of public companies, it is an uphill struggle for individual investors to bring about real change. And the institutional investors, many of whom get paid obscene amounts of money for underperforming the market, aren't very likely to start throwing stones at their CEO cousins any time soon.
Let me emphasize here that I do believe that successful CEOs should be richly rewarded. Jack Welch at General Electric (NYSE: GE ) probably earned every penny of his generous compensation. And shareholders would probably be OK with providing Warren Buffett of Berkshire Hathaway (NYSE: BRKa ) (NYSE: BRKb ) with a blank check for his masterful leadership.
When I was growing up, many little boys dreamt of someday becoming a major league baseball player. Nowadays, youngsters across the land dream of eventually running a DVD rental shop into the ground. It pays a lot better, and you don't have to worry about hitting a curveball.
For more CEO foolishness (with a small 'f'):
John Reeves owns shares of Netflix. The Fool's disclosure policy hasn't failed anyone yet.