Buffet Faults Executive Pay Disclosures for Contributing to CEO Pay Rise

Corporate Governance, Executive Pay Plan Design

At this year's Berkshire Hathaway annual meeting, CEO Warren Buffet took issue with those clamoring for greater disclosure of executive or senior manager compensation, stating: "It's very seldom that publishing compensation accomplishes much for the shareholders."  In response to a question during the Q&A session of the company's annual meeting regarding whether Berkshire would disclose more pay information about the executives of some of its larger and better known units such as BNSF Railway Company and GEICO Insurance, Buffet remarked, "No CEO looks at a proxy statement and comes away saying, 'I should be paid less.'  It is only human to look at a whole bunch of proxy statements and say, 'I'm worth a lot more than that guy.'"  Buffet raised the concern that the public disclosure of pay information could have a negative impact on the company's bargaining position when negotiating with the most highly paid individuals at subsidiaries, thereby harming shareholders.  Although it is now well accepted that public companies should have to disclose CEO pay information, there is clearly a relationship between greater mandatory disclosure of executive pay, which began in 1980, and higher executive pay (recognizing that other factors play a role as well).  Meanwhile, Congress is mandating compensation disclosures to address social issues, such as the pay ratio, rather than provide meaningful information to investors.  In a new book, More Than You Wanted to Know: The Failure of Mandated Disclosure, law professors Omri Ben-Shahar and Carl Schneider note that, with disclosure, "Lawmakers mandating disclosure are grazing a public commons—people's attention.  Each mandate draws a bit of this resource, degrading the others.  Lawmakers never consider this when mandating a disclosure, since they are focused on the immediate problem before them."  The book underscores the argument that smart disclosure—rather than simply more disclosure—is essential, especially in the compensation arena.