Category — Bear Sterns

Bear Sterns collapse has sparked a lot of discussion about executive pay. Liberals, ever eager to stoke the class warfare fire, seize on the latest headline to bemoan excessive executive payouts. Sadly, in many cases, they do have a point. You’d be hard pressed to find a bigger capitalist and believer in free markets than yours truly. But how can you justify CEO James Cayne and his top brass leaving with $917.2 million in compensation while stockholders and employees are left holding the bag?

Executives shouldn’t be walking away from companies with 100s of millions win, lose, or draw. The market rewards performance, and that’s how an executive should be rewarded too. But few executive compensation committees, some might argue the board in general, are fulfilling their fiduciary responsibilities to the shareholders. Instead, most boards focus on overall compensation, a keep up with the Jones philosophy, with little thought for providing incentives and rewards to encourage executive performance.

If the regulations and taxes come, the executives and boards have nobody to blame but themselves. They need to start designing compensation systems that more closely link company performance with executive pay. A good way to snare CEOs like James Cayne would be vesting his pay in 1 year increments over a 5 year period after he retired based on Bears’ performance. That’d provide a large incentive for executives to keep an eye on the future as well as today.