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Berkshire Hathaway
Kilts Compensation Mind-Boggling!

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By Parsad
February 7, 2005

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It seems as though many people are happy with the Gillette/PG deal, but James Kilts's compensation seems nothing short of obscene! He joined the company in 2001, and four years later collects compensation of $153M. I love Warren, and I love the Gillette business, but I'm surprised that Warren hasn't said anything about Kilts's potential payout. Especially since our beloved CEO earns only a couple hundred thousand a year with director's fees, and has never received stock options or bonuses.

I remember this board was extremely critical of Sandy Weill and Michael Eisner's paydays, but considering the amount of time they spent building their companies, and the number of deals they were involved in, perhaps their compensation was somewhat justified. Frankly, I think the audit committee, board of directors and executives at Gillette have alot to answer for. Warren isn't on any of those committees, but I think he was there when Kilts was hired, and must have been there when Kilts's original compensation plan was drawn up.

CFO.com, Massachusetts Probing Gillette Payouts

money.telegraph, Gillette Chief to Net $120m in Takeover


By this logic, Jim Cantalupo the former CEO of McDonald's, restored the equivalent in market cap and company performance in half the time it took Kilts. Shouldn't Cantalupo have received twice as much in compensation as Kilts? Yet comparatively:

In 2003, Mr. Kilts received a $1.275M salary, a $2.7M bonus,$422K in other compensation, 2M stock options, and $278K in "all other compensation." During the same fiscal year, Mr. Cantalupo received a $1.4M salary, a $2.12M bonus, 400,000 in stock options and "all other compensation" of $172K.

Performance-wise in 2003, Gillette's revenues were up 9.5%, gross profit up 12.2%, net income up 13.9%, shareholder equity down 1.6%, per share income up 17.4%, and they had bought back 35M shares. McDonald's revenues were up 11.3%, gross profit was up 11.5%, net income was up an amazing 64.7%, shareholder equity was up generously by 16.5%, per share income was up 64.3%, and they had bought back 5M shares.

Considering that Gillette has nearly 30% fewer shares outstanding than McDonalds, Mr. Kilts's 2,000,000 in stock options in 2003 gives him a significantly greater percentage of the business, than Mr. Cantalupo's 400,000 shares did at McDonalds. I'm happy for Berkshire, and this is a good deal for Gillette, but the biggest winner by far is James Kilts! Cheers!


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