Perhaps the only thing more galling to shareholders than paying bonuses to executives for their spectacular failures is giving them a bonus for just doing their job.
The anger that erupted when American International Group
Take Jon Huntsman, board chairman, founder, and major shareholder of the specialty chemicals company bearing his name, Huntsman
Apollo Capital Management proposed a merger of Huntsman and its own Hexion Specialty Chemicals last year but, as the markets fell apart, sought to back out of the deal. Huntsman took them to court and had won several favorable rulings that were seen as forcing the merger forward, when they suddenly announced a settlement: Apollo would pay just $1 billion of the $3 billion in damages Huntsman had been seeking and they would be allowed to break the deal. For this, the company announced that it would pay its chairman $15 million.
Now granted, Jon Huntsman isn't the company's CEO, so it wouldn't typically be his job to negotiate on behalf of the company. The problem here is that according to the company's 2008 proxy statement,he's already deemed a beneficial owner of some 30% of the company's stock, so it was already in his interest to negotiate the best settlement possible. But one Huntsman board member said the chairman "singlehandedly negotiated this settlement and, I believe, saved the company in doing so."
Sadly, this sort of thing isn't anything we haven't seen before. We see examples of corporate insiders reaping windfalls for achieving minor accomplishments all the time.
The money keeps flowing
Dan Hesse, CEO at Sprint-Nextel
Yet isn't that part of an executive's job description? After all, Sprint's business performance has been half-baked at best, losing 4.6 million customers last year while net losses mushroomed to $2.8 billion. Shareholders are nursing a stock price that dropped 86% last year, and despite a bounceback in 2009 have still seen major losses over the past several years.
Even Midway Games, which is in bankruptcy, is trying to pay its executives millions in bonuses for taking steps to sell off its Mortal Kombat franchise. That's something even the trustees overseeing the liquidation can't abide by, arguing that those actions are "the main jobs of Midway employees now, not something special for which they should be incentivized."
Never before have we rewarded so many so much for doing so little. Although the bonuses are nominally performance-related, companies seem willing to hail the attainment of any minor goal as a major achievement so as bestow rich rewards on insiders. As this all comes at the expense of shareholders, this enrichment for failure -- or just doing their job -- has got to stop.
Fool contributor Rich Duprey owns shares of Huntsman but does not have a financial position in any of the other stocks mentioned in this article. You can see his holdings here. The Motley Fool has a disclosure policy.