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April 27, 2006
Golden Parachute, Still Packed and Ready
So it looks like Pfizer's shareholder revolt didn't get much traction today. A couple of groups had urged "no" votes on issues like CEO Hank McKinnell's compensation and pension package, but all the company-endorsed positions were carried by a good margin.
I'm of two minds about this sort of thing, but I come down more with the revolutionaries, partly because I think that company boards should be kept on their toes a lot more than they are. And although I'm somewhat rightish in my politics, I think that CEO compensation has become out of whack over the years. Making the rewards this huge seems to me to run the risk of creating a management culture that's mostly concerned with fighting to the top of the sugar pile. I do think that higher positions should be well-paid, mind you, just perhaps not quite as asymptotically well-paid as they've become. Presumably the market will eventually correct for this, if companies become too top-heavy in their expenditures or ruin their managerial competence with perverse incentives. But it could take a while for all that to even out, and in the meantime we have some unseemly situations.
I'd rather see such rewards tied to measurable performance, insofar as it can be measured, but there's a danger in relying on any one factor. If you tie the big payoffs to the price of the company's stock, you create a moral hazard, with an incentive to do whatever it takes to elevate the stock. And that's only a rough surrogate for what's good for the company. If you use some sort of internal financial measurement, like sales growth or what have you, then the hazard is the temptation to sweeten the numbers. Examples of both of these situations abound. I think it's best to rely on a score that's made up of a number of factors, with no one of them large enough to present a target for funny business.
How does McKinnell stack up? Pfizer's stock has been no particular prize during his tenure, and I've said before that I don't see it being one for some years to come. That's one of the things that got the shareholders - some of them, anyway - wound up. Other measurements could be spun either way: if you like the bigger-bigger-bigger path the company's taken the last few years, and admire the big-decision mentality that's been needed to realize it, then you'd probably be inclined to let the man take the cash. But if you think that these moves are part of Pfizer's current problems, or at least no part of their solution, then you've got a different figure in mind for him. Pfizer seems to have more of the first type of shareholder than the second, at least for now. . .
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