Failure Pays

From The Corporate Library. Here's the "free market" at work...

A newly released study by The Corporate Library ("TCL") of executive incentive compensation practices finds that the gap between pay and performance over the past five years is most pronounced at 11 of the largest U.S. companies. At the 11 companies in the study, Pay for Failure: The Compensation Committees Responsible, The Corporate Library found that compensation committees authorized a total of $865 million in pay to CEOs who presided over an aggregate loss of $640 billion in shareholder value.

The 11 companies are some of the biggest household names in Corporate
America.

AT&T Inc. (T)
BellSouth Corporation (BLS)
Hewlett-Packard Company (HPQ)
Home Depot, Inc. (The) (HD)
Lucent Technologies Inc. (LU)
Merck & Co., Inc. (MRK)
Pfizer Inc. (PFE)
Safeway Inc. (SWY)
Time Warner Inc. (TWX)
Verizon Communications Inc. (VZ)
Wal-Mart Stores, Inc. (WMT)

Each of the 11 companies: received a high risk rating from The Corporate
Library; paid their CEOs in excess of $15MM in the last two available fiscal years; had a negative return to stockholders over the last five years; and underperformed their peers over the same period. “Our research shows that the link between long-term value growth and long-term incentive awards is broken at too many companies – if it was ever forged properly in the first place,” says one of the report’s authors, TCL Senior Research Associate Paul Hodgson.The study examines in detail the incentive policies at each of the 11 companies; finding high proportions of fixed pay, poorly chosen performance metrics, and rewards for below median performance. The report also looks at the make-up of the compensation committees at the companies, listing the members by name, along with their compensation. The report also gives examples of Pay for Success compensation.