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The Lost Decade vs. the Decade of Decadence

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Many investors believe we've experienced a lost decade for stocks, and for some, financial returns reflect the reality of a turbulent and often difficult to navigate 10-year stretch. Regardless of whether the last 10 years require a Lost and Found sign, though, there's one group of folks that definitely did not experience a financial lost decade: chief executive officers of major public companies.

Unlike most of us, this "special" group benefits from a peculiar twist that sounds like it was exported straight from Bizarro World while so many regular Americans struggled. They make big-time bank when they hit the exits, and sometimes even rake in millions for failure. For them, the so-called lost decade was a lucrative and decadent blast.

A millennium of madness
GMI, the leading independent provider of global corporate governance ratings, recently released its report on the largest severance packages of the millennium. The report outlined 21 chief executive officers who received golden parachutes that totaled more than $100 million.

The report is full of controversial moments that should catalyze shareholders everywhere to rail against poor compensation policies where CEOs always make out like bandits, regardless of performance.

General Electric's (NYSE: GE  ) Jack Welch tends to elicit a lot of respect for his 20-year tenure, but his severance topped the list at more than $400 million. In addition, his perks -- which raised controversy and which he eventually gave up -- included crazy corporate giveaways such as the use of an $80,000-per-month company apartment in Manhattan; seats to New York Knicks, U.S. Open, Wimbledon, Red Sox, and Yankees games; country club costs; and restaurant tabs.

Viacom's (NYSE: VIA  ) Thomas Freston squeaked onto the list with a goodbye package valued at over $100 million, but here's the rich outrage: He only served as CEO of the media company for nine lousy months.

Some of the examples could be called "double dipping." For example, when Lee Raymond left the helm of ExxonMobil (NYSE: XOM  ) , he not only received a pension but also ongoing vesting of stock options and restricted stock. His total goodbye package: more than $320 million.

In a stunning example of pay for failure, former Pfizer (NYSE: PFE  ) CEO Hank McKinnell Jr. received $188 million for an unsuccessful five-year stint, during which time the company lost $140 billion in market value.

GMI also covered a collection of well-compensated outgoing CEOs who were "paid and stayed." This year, Nabors Industries' $100 million parting payout to retiring CEO Eugene Isenberg became even more mind-blowing upon realization that he isn't even leaving the company; he's staying on as chairman.

The report also highlighted Simon Property Group's (NYSE: SPG  ) revised employment agreement with current CEO David Simon, which obligated him to stay on at his post for an additional eight years and included a massive amount of annual stock grants and a "retention bonus" of more than $120 million. Given the fact that David Simon's the son and nephew of the founders, who the heck would think he was going anywhere?

Stop the decay defines the word "decadence" as follows: 

1) the act or process of falling into an inferior condition or state; deterioration; decay; 2) moral degeneration or decay; turpitude; 3) unrestrained or excessive self-indulgence.

Somehow our culture has glorified unrestrained, excessive self-indulgence while forgetting that decay (and an inferior state) is at the root of the word decadence. Talk about missing the point.

When chief executive officers are insanely overpaid or paid handsomely for failure, it deteriorates shareholder value. Such states can also be viewed as solid examples of moral and ethical failings by those who give the green light to such plundering. Financially and ethically, there's really no rational justification for many companies' truly decadent compensation policies.

For those who are invested in less upstanding companies, if you're not prepared to sell, then make a lot of noise about compensation problems. Managements and boards must be forced to understand that there's a huge difference between a financially successful company and a financially successful CEO.

Let's avoid another "lost decade" and find solid, well-run companies that pay their executives for performance, not for failure. Haven't shareholders lost enough in CEOs' decade of decadence?

Exemplary leadership is one of the sure signs of a winning stock. A recent special report from The Motley Fool reveals how truly good leaders have their pay linked to performance. Learn more about the companies that have these strong leaders at the helm; click here and read this report for free today.

Check back at every Wednesday and Friday for Alyce Lomax's columns on environmental, social, and governance issues.

Alyce Lomax does not own shares of any of the companies mentioned. Motley Fool newsletter services have recommended buying shares of Pfizer. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Read/Post Comments (10) | Recommend This Article (31)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On January 13, 2012, at 3:42 PM, DJDynamicNC wrote:

    Talking about CEO compensation is less glamerous than talking stock tips and investment strategies, but it's an essential component to understanding your portfolio and taking care of it.

    Lots of proxies coming up in the spring, I'm looking forward to voting accordingly.

  • Report this Comment On January 15, 2012, at 8:49 PM, jamyang wrote:

    This article illustrates very nicely the total failure of boards of directors to perform their fiduciary responsibilities.

    It makes me want to puke to see guys like Welch grandstanding on CNBC and elsewhere about the failures of Obama, when he himself represents a perfect example of corrupt capitalism. The man made his fame by outsourcing jobs to Asia when it was the easy thing to do. "Everybody was doing it" right? Welch was at the head of the pack. "Makes money for the shareholders."

    As a shareholder in GE for many years, I believe that this company owes its status not only to the shareholders but also to the workers. Guys like Welch are the showboaters who road the waves of the gravy train.

    A pathetic American.

  • Report this Comment On January 16, 2012, at 4:09 PM, WEBbuff wrote:

    I think it would be helpful to put these numbers into context. For instance, how large are these compensation packages as a percentage of the company's revenue or net income? Even if a company executive receives hundreds of millions of dollars upon retiring (or upon being reassigned as the company's chairman), what significance does this "decadence" have from a 'big-picture' perspective?

    Also, what does it mean that decadence "deteriorates shareholder value"? Are there specific examples of companies being hurt by lavish executive compensation? What are the tangible effects of such deterioration?

  • Report this Comment On January 16, 2012, at 7:09 PM, dennyinusa wrote:

    To WEBbuff.

    I would say the tangible effect is that you will have a loss of trust from shareholders and customers. If a company lavishly over compensates incompetent executives you have to start questioning if a company can really be a good investment or if they are fully committed to making a great product. It also leads me to ask will they put money into R & D, sales and employees. We as a society have been guilty of giving to much credit and compensation to under achieving people for the last 40 years.

    We actually have hurt our society because we have not been promoting people to jobs or positions based on skills, but by connections and money. Let the best of best rise on merit, and then we will see who really have skills and talent. Once trust in institutions that we rely on throughout society whether it is government, bankers, corporations, unions or Wall Street is lost the whole system starts to breakdown.

  • Report this Comment On January 16, 2012, at 9:12 PM, lowmaple wrote:

    when companies report profits or losses, a few cents can sometimes result in dollars of change in the price of the stocks. There is usually more than one person in the company receiving these gold chutes which could make this difference.

  • Report this Comment On January 17, 2012, at 2:05 AM, RRGGBB wrote:

    Free societies can not function if there is such a huge difference in financial compensation between the people on the top and the people at the bottom of a business.

    People like my parents who lost their dividend income because of the corruption in the banking industry - stocks held over three generations - i think would prefer to have the compensation packages divided amongst the shareholders - why should investors suffer instead of the ones who created the mess.

  • Report this Comment On January 17, 2012, at 10:49 AM, Johnlatasa wrote:

    A lot of people are grossly overpaid, my local major league baseball team is paying a pitcher $126m and his pitching has been horrible. And yet, the team won a world championship and they sell out every game. So, is there any correlation between over compensation of a CEO (and who decided what constitutes overcompensation?) and the bad performance of the company and it's stock?

    BTW, are CEOs the only overcompensated ones? What about the UAW employees? Their lavish salaries and pensions would have put GM in to bankruptcy if the government hadn't reached in to the tax payers pocket and bailed them out.

  • Report this Comment On January 17, 2012, at 11:49 AM, jrj90620 wrote:

    Maybe there's a lot more inflation than you think or govt's phony inflation statistics report.I'm seeing massive price increases and,for some reason,others aren't seeing.Shadowstats reports inflation,in the U.S.,over the last 12 months,using methods of calculation,used by govt in 1980,as being 11%.This is a lot closer than govt's phony figures.

  • Report this Comment On January 17, 2012, at 2:17 PM, DJDynamicNC wrote:

    "Our merchants and master-manufacturers complain much of the bad effects of high wages in raising the price, and thereby lessening the sale of their goods both at home and abroad. They say nothing concerning the bad effects of high profits. They are silent with regard to the pernicious effects of their own gains. They complain only of those of other people." - Adam Smith

  • Report this Comment On January 18, 2012, at 1:02 PM, FoolishVintner wrote:

    There comes a time when Toto needs to exercise his better sense and help people see the man behind the curtain. Hopefully, there will be a positive result of all this anger and demagoguery about executive compensation, so that the public will become more educated about the process whereby these insane compensation levels are derived. (Hint: it has nothing whatsoever to do with market forces, paying them what they are worth to the company, or paying what it would require to attract competent leaders.)

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