There's long been a disconnect between a CEO's pay and the performance of that CEO's company. When a manager does well and shareholders prosper because of it, compensating him or her appropriately is not out of line. But it shouldn't be too much for shareholders to expect that a front-office position doesn't simply become a means for enriching the person who happens to hold it.
Consider, then, the case of Flextronics International
For such a severance package, Flextronics must have been a star performer. Right?
Well, over the preceding four quarters, the company has posted steadily declining profits, and it foresees lower earnings and sales ahead. Even the company noted in its proxy statement filed last March that an investment in the company's stock hasn't been such a good deal for investors. A $10,000 investment in Flextronics in 2000 would have been worth just $3,419 last March, and the stock sits an additional 8% lower now.
When you compare Flextronics' performance with that of competitor Jabil Circuits
And that shows just how tough the contract manufacturer industry has been on semiconductors. The particularly rough slump cut across all categories of the industry, and it's been able to pick itself up out of the mire only in the past year or so. Celestica
As shareholders, we rely on boards of directors to exercise fiduciary restraint in compensating executives, yet since boards mostly consist of fellow CEOs, there appears to be no shame in awarding excessive grants, packages, benefits, and perks. Certainly, Flextronics isn't the most egregious case of over-the-top remuneration, but shareholders ought to be asking themselves whether management and the board of directors really have their interests aligned. It looks as though Flextronics has disconnected performance pay from reality.
Flex your muscles with these related Foolish articles:
Fools, now is the time to open your hearts and wallets to worthy causes! Please support our five Foolish charities at www.foolanthropy.com.