As I wander down the long hallway of life, I grow wiser, although it happens very slowly.
Long ago, I figured out that many of the folks who win and folks who lose don't do these things based strictly on merit. There is also animal cunning, basic smarts, and the ever-sharp claw of fate.
But maybe I've worked in the movie industry too long, and seen too much. Because I was reminded (again) of Tinsel Town realities as I perused an investment book this past weekend. It was a tome called The Five Rules of Stock Investing -- Morningstar's Guide for Building Wealth and Winning the Market, and pages 104 and 105 read as follows:
Analyzing a Company -- Management
Compensation is the easiest of the three areas to assess because the bulk of the information is contained in a ...proxy statement.
First and most important, how much does management pay itself? ... [S]ome executives think they have a license to print money just because they manage a huge company, no matter how poor a job they're doing.
Pay for Performance
...At many companies, so-called "performance targets" are set by a subcommittee of the board of directors, which can often rewrite the rules of the game if the CEO appears to be losing.
...In 2001, for example, Coca-Cola's board reduced CEO Douglas Paft's goal of 15 percent earnings growth over five years to 11 percent ...
At least Coke's shareholders knew what the target was, though. According to the 2001 proxy, Walt Disney's compensation gurus decided that bonuses:
"... may be based on one or more of the following business criteria, or on any combination thereof, on a consolidated basis: net income (or adjusted net income), return on equity (or adjusted return on equity), returns on assets (or adjusted return on assets), earnings per share (diluted) (or adjusted earnings per share [diluted].)
In other words, Disney's CEO was going to get paid no matter what. To add insult to injury, the gang at Disney wrote that "[we believe] that the specific target constitutes confidential business information the disclosure of which could adversely affect the Company."
More likely, it would have adversely affected Disney management because the board wouldn't have been able to move the goalposts in the middle of the game ..."
-- Pat Dorsey -- Director of Stock Analysis -- Morningstar.
2001, of course, was during the storied reign of Diz Co. Chief Michael Eisner, (around the time a disgruntled Disney lawyer grumbled to me: The Company took a beating last year. The stock lost money. But Michael still got the board to give him and Bob Iger eight million dollar bonuses ...")
Meritocracy is a wonderful thing. But please don't delude yourself that it is the only (or principle?) force that's in play. The game, sadly, is often rigged.