Warren Buffett of Berkshire Hathaway
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In some important respects, CEO
like it’s the 1960s, when he took control of the company.
CEO and board pay remain at 1960s levels. Top executives are paid entirely in cash. There is no stock-based compensation. There is minimal bureaucracy. Buffett personally decides the pay of the top executives of Berkshire Hathaway (BRK/A,
BRK/B). The company has no stated goal of diversity on its board, although two of the 14 current members are from racial or ethnic minorities, and four are women.
All this is apparent from the annual proxy statement released late Friday.
The Berkshire formula has worked extraordinarily well over more than 50 years thanks to Buffett’s genius.
Berkshire shares have hit a record Monday with the class A stock up 1.5% to $497,247 after topping $500,000 earlier in the session. The class B shares are up 1.5% to $331.45. Berkshire’s class A shares are up 10% so far this year, way ahead of the
S&P 500 index, which is down about 12%. Berkshire’s A shares are up from around $20 (not a misprint) when Buffett took over in 1965—a 20% annualized return, double that of the S&P 500.
During 2021, Buffett was paid $100,000 in salary with no bonus as has been the case for more than 25 years. CEOs in the 1960s earned an average of more than $200,000 annually. Buffett has said he doesn’t want to be paid more.
The executive pay scheme at Berkshire is a refreshing contrast to that of the nearly every big company where top executives are paid based on long and often incomprehensible formulas drawn up in part by compensation consultants.
Buffett dislikes consultants, having argued their formulas inflate CEO pay. Berkshire Vice Chairman Charlie Munger, who also takes home just $100,000 annually, has even stronger views, saying in 2004 that “I’d rather throw a viper down my shirtfront than hire a compensation consultant.”
Berkshire did pay $273,204 for Buffett’s personal security in 2021, which was included in compensation based on regulatory rules. But that was a bargain relative to other CEOs.
(FB), for instance, spent $13 million for CEO Mark Zuckerberg’s security in 2020. For that outlay, Zuckerberg could have his own Praetorian Guard like his idol, the Roman emperor Augustus.
Berkshire board members are paid $900 for each meeting they attend in person, and $300 for participating via telephone. With just three board meetings last year, the base board pay was $2,100, with some getting $4,000 more for being members of the audit committee. The average pay for board members at big companies is more than $250,000 annually.
Berkshire directors may view it as a privilege to serve on Buffett’s board and they do so without the protection of directors and officers insurance, which is standard at big companies. It remains Buffett’s company with the 91-year-old CEO owning a 16% economic stake worth $117 billion, and 32% voting control.
Berkshire has relatively few board meetings—Meta had 15 in 2020. Buffett isn’t a fan of meetings, remarking once that one of the few regular items on his calendar is a haircut.
Buffett sets the pay for Berkshire’s top three executives, vice chairmen Ajit Jain and Greg Abel, and Chief Financial Officer Marc Hamburg.
Here’s how he does it: “Factors considered by Mr. Buffett in setting the compensation for Mr. Abel, Mr. Jain, and Mr. Hamburg are typically subjective, such as his perception of each of their performance and any changes in functional responsibility,” the proxy states.
Jain and Abel, who head Berkshire’s insurance and non-insurance businesses, respectively, are paid well, earning $19 million in salary and bonus in each of the past three years.
Not only is there is no stock compensation for top Berkshire executives—there doesn’t appear to be any at the entire company. That’s a contrast with virtually every big company.
Buffett views every share of Berkshire as precious and is loath to issue stock and dilute holders, remarking in his 2016 annual letter that Berkshire prefers to pay cash for acquisitions. “Today, I would rather prep for a colonoscopy than issue Berkshire shares,” he wrote.
Buffett also hates bureaucracy, which his friend
(JPM) CEO Jamie Dimon has called the bane of any big company.
Buffett pointed out a while ago that Berkshire’s headquarters in Omaha is thinly staffed with no human relations, investor relations, public relations, or legal department, although many of its subsidiaries have some of those functions.
On board diversity, here is what the proxy states:
“Berkshire does not have a policy regarding the consideration of diversity in identifying nominees for director. In identifying director nominees, the Governance Committee does not seek diversity, however defined. Instead, as previously discussed, the Governance Committee looks for individuals who have very high integrity, business savvy, an owner-oriented attitude and a deep genuine interest in the Company.”
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