This is capitalism?

[TexasTiger 13,031]

We had a thread on this a while back. Here's a great example of the problem. Rewarding failure is bad economics:

Merrill’s departing chief to get $160m

Merrill Lynch on Tuesday boosted Stan O’Neal’s departure package by almost $90m – taking it to $160m – by letting him retire as chairman and chief executive rather than sacking him.

The company said Mr O’Neal and the board had “both agreed that a change of leadership would best enable Merrill Lynch to move forward”.

Mr O’Neal’s departure follows the company’s admission last week that it had lost almost $8bn on mortgage-backed securities, making him the most senior executive to lose his job as a result of the US subprime mortgage turmoil.

By casting his departure as a retirement, the board allows Mr O’Neal, who was paid $48m last year, to retain deferred compensation in the form of unvested stock worth $90m, giving him a total exit package of about $160m, including other compensation, shares and benefits.

The move threatens to reignite the controversy over the link between pay packages for executives and their performance. But lawyers said Merrill would have found it legally difficult to fire Mr O’Neal “for cause”.

http://www.ft.com/cms/s/0/4fb6d18c-86eb-11...00779fd2ac.html

[AURaptor 1,126]

The Left is back to basics. Wealth bashing, 101. How is this capitalism again? One company, it's board members deciding to cut bait and that somehow is a model for ALL capitalism?

[TexasTiger 13,031]

The Left is back to basics. Wealth bashing, 101. How is this capitalism again? One company, it's board members deciding to cut bait and that somehow is a model for ALL capitalism?

You rarely ever get the point of anything, do you?

[otterinbham 0]

How is this any different that a professional sports team paying obscene amounts of money for a franchise player, only to have him bomb on the court or the field?

However, most professional athletes earn their money. The same is true of almost all CEOs. Nobody's complaining about what CEOs make when a company is successful. Well, actually, a few university professors and other vaguely dissatisfied neo-Marxists. But nobody really takes those people seriously. In truth, the only people who really have a right to complain about this joker's compensation are the shareholders of the company.

So one underperforming executive gets dumped and takes advantage of his generous negotiated parachute package, and suddenly it's an indictment of the entire system? Usually, you don't make arguments this simplistic.

[TexasTiger 13,031]

How is this any different that a professional sports team paying obscene amounts of money for a franchise player, only to have him bomb on the court or the field?

However, most professional athletes earn their money. The same is true of almost all CEOs. Nobody's complaining about what CEOs make when a company is successful. Well, actually, a few university professors and other vaguely dissatisfied neo-Marxists. But nobody really takes those people seriously. In truth, the only people who really have a right to complain about this joker's compensation are the shareholders of the company.

So one underperforming executive gets dumped and takes advantage of his generous negotiated parachute package, and suddenly it's an indictment of the entire system? Usually, you don't make arguments this simplistic.

If the state of professional athletics is your point of comparison and you don't see that as a problem, that's telling.

Usually you don't miss the point as badly as Raptor. I hardly indicted an entire system. I simply pointed out that when such things happen, it is not an example of how capitalism is supposed to work. Success is supposed to be rewarded, not failure. I don't think Adam Smith would approve of such practices.

[otterinbham 0]

How is this any different that a professional sports team paying obscene amounts of money for a franchise player, only to have him bomb on the court or the field?

However, most professional athletes earn their money. The same is true of almost all CEOs. Nobody's complaining about what CEOs make when a company is successful. Well, actually, a few university professors and other vaguely dissatisfied neo-Marxists. But nobody really takes those people seriously. In truth, the only people who really have a right to complain about this joker's compensation are the shareholders of the company.

So one underperforming executive gets dumped and takes advantage of his generous negotiated parachute package, and suddenly it's an indictment of the entire system? Usually, you don't make arguments this simplistic.

If the state of professional athletics is your point of comparison and you don't see that as a problem, that's telling.

Usually you don't miss the point as badly as Raptor. I hardly indicted an entire system. I simply pointed out that when such things happen, it is not an example of how capitalism is supposed to work. Success is supposed to be rewarded, not failure. I don't think Adam Smith would approve of such practices.

Well, the title of your thread is so vague that one can draw any number of conclusions about your intent.

And your statement of how "rewarding failure is bad economics" is off the mark. You would have been far more accurate to say "rewarding failure is bad business."

Economics refers to the overall fiscal health of society. By stating that "rewarding failure is bad economics", you imply that executive compensation becomes a matter for public concern, thereby becoming the provenance of government.

However, with a more accurately stated "rewarding failure is bad business," then you'll get very little argument from me. At the same time, individual businesses have the right to conduct business in a slipshod or foolish manner, as long as they're not polluting the environment, endangering consumers, or defrauding investors. Otherwise, you might as well advocate government scrutiny of how much public companies pay per square foot of office space.

As with any public corporation, O'Neal's compensation package and termination contracts were public knowledge and were voted upon by the shareholders. So the shareholders, and the shareholders alone, are the responsible parties. And they will punished by their lack of oversight by a drop in stock valuation. Seems like the fairest and most accurate way to deal with things if you ask me.

Further, I don't really like the salary levels of professional athletes. But, then again, I'm not the owner of a professional sports team. If networks pony up the money for broadcast rights and spectators go buy $100 tickets and $50 team jerseys and feel they have a good deal, then who are you and I to argue?

[AURaptor 1,126]

The Left is back to basics. Wealth bashing, 101. How is this capitalism again? One company, it's board members deciding to cut bait and that somehow is a model for ALL capitalism?

You rarely ever get the point of anything, do you?

You rarely ever make a point about anything, do you ?

I hardly indicted an entire system

Actually, you did just that, by begging the question " Is this capitalism? " .

[TitanTiger 20,511]

TexasTiger was not indicting the system. I immediately knew what he was saying. It's not that capitalism is bad, it's that some of the biggest touters of capitalism aren't following their own premise when they so richly reward utter failure like this.

I think the difference between this and a sports star's contract is that a sports star typically signs a deal for however many years at a certain salary. A portion of that deal is guaranteed and he makes that money regardless. But the anticipation is that he'll play those years and perform relatively well. What they don't write into those deals are things like, "in the event you're an utter failure and we decide to cut you, here's a big pile of money for getting cut." It would be one thing if the CEO of Merrill Lynch had a deal making, say $5 million a year (just making up a figure) for 5 years and he got fired after 3 years. The company is obligated to pay the other two years anyway. But to put in there a package, from the get-go, where a guy gets an obscene amount of money specifically in a situation where he's being fired for bad performance, is just turning the principles of capitalism on its ear altogether.

I think it's disgusting. And I'll guarantee you that the peons who lost jobs at Merrill Lynch as a result of the company losing 8 BILLION dollars under this guy's tenure didn't get more than a few weeks severance pay of a few thousand dollars when they were let go. And they weren't even the ones directly responsible for the loss.

[otterinbham 0]

TexasTiger was not indicting the system. I immediately knew what he was saying. It's not that capitalism is bad, it's that some of the biggest touters of capitalism aren't following their own premise when they so richly reward utter failure like this.

I think the difference between this and a sports star's contract is that a sports star typically signs a deal for however many years at a certain salary. A portion of that deal is guaranteed and he makes that money regardless. But the anticipation is that he'll play those years and perform relatively well. What they don't write into those deals are things like, "in the event you're an utter failure and we decide to cut you, here's a big pile of money for getting cut." It would be one thing if the CEO of Merrill Lynch had a deal making, say $5 million a year (just making up a figure) for 5 years and he got fired after 3 years. The company is obligated to pay the other two years anyway. But to put in there a package, from the get-go, where a guy gets an obscene amount of money specifically in a situation where he's being fired for bad performance, is just turning the principles of capitalism on its ear altogether.

I think it's disgusting. And I'll guarantee you that the peons who lost jobs at Merrill Lynch as a result of the company losing 8 BILLION dollars under this guy's tenure didn't get more than a few weeks severance pay of a few thousand dollars when they were let go. And they weren't even the ones directly responsible for the loss.

A lot of what you say is true. Merrill Lynch's Board of Directors should be pilloried for this. But, on a regulatory level, what do you propose to do about it? Are you seriously proposing salary and compensation caps for executives? Boy, if you are, you're opening up Pandora's Box when it comes to government regulation of private company's operations. Instead, Merrill Lynch will take a major hit in the marketplace, socking it to shareholders as a result, the people who were asleep at the switch.

As far as the poor people who lost their jobs, I feel sorry for them. However, people lose their jobs everyday due to poor management and bad decisions. This just happens to be a very public example of it.

Personally, I had stock in Merrill Lynch up to two years ago. I bailed about a year and half ago when the stock hit $80/share, chiefly because I didn't have much faith in O'Neal's abilities. Of course, I second-guessed myself when the stock surged to $95, but I'm glad I sold out when I did.

[TitanTiger 20,511]

A lot of what you say is true. Merrill Lynch's Board of Directors should be pilloried for this. But, on a regulatory level, what do you propose to do about it? Are you seriously proposing salary and compensation caps for executives? Boy, if you are, you're opening up Pandora's Box when it comes to government regulation of private company's operations. Instead, Merrill Lynch will take a major hit in the marketplace, socking it to shareholders as a result, the people who were asleep at the switch.

As far as the poor people who lost their jobs, I feel sorry for them. However, people lose their jobs everyday due to poor management and bad decisions. This just happens to be a very public example of it.

Personally, I had stock in Merrill Lynch up to two years ago. I bailed about a year and half ago when the stock hit $80/share, chiefly because I didn't have much faith in O'Neal's abilities. Of course, I second-guessed myself when the stock surged to $95, but I'm glad I sold out when I did.

I don't think they have to cap their salaries, but they could change laws so that compensation is more closely tied to performance, eliminating these golden parachutes when people are being fired because of bad performance. I realize people lose jobs all the time because of poor management, but when they lose their jobs and get a small severance (if any) while at the same time the CEO is richly rewarded for his poor management, that's a problem.

[Tiger Al 0]

As with any public corporation, O'Neal's compensation package and termination contracts were public knowledge and were voted upon by the shareholders.

I'd venture to say that this isn't quite accurate. Wouldn't it have been voted on by the board of directors? I've held stock in various funds for 15+ yrs. and have NEVER voted on anything other than BoD members. I can't imagine an above-board vote taking place in which average shareholders would've approved this.

[otterinbham 0]

As with any public corporation, O'Neal's compensation package and termination contracts were public knowledge and were voted upon by the shareholders.

I'd venture to say that this isn't quite accurate. Wouldn't it have been voted on by the board of directors? I've held stock in various funds for 15+ yrs. and have NEVER voted on anything other than BoD members. I can't imagine an above-board vote taking place in which average shareholders would've approved this.

I work with publicly held corporations. There are things known as shareholder meetings. What's more, while the poor slob owning 500 shares doesn't have much of a voice in matters, large institutional investors have enormous input into how things are done, who gets paid what, and when key executives get shown the door. So what you're saying isn't correct. The large institutional investors, the people who make up the majority of the holdings in almost every publicly held corporation, are very apprised on the company's day-to-day performance.

[otterinbham 0]

A lot of what you say is true. Merrill Lynch's Board of Directors should be pilloried for this. But, on a regulatory level, what do you propose to do about it? Are you seriously proposing salary and compensation caps for executives? Boy, if you are, you're opening up Pandora's Box when it comes to government regulation of private company's operations. Instead, Merrill Lynch will take a major hit in the marketplace, socking it to shareholders as a result, the people who were asleep at the switch.

As far as the poor people who lost their jobs, I feel sorry for them. However, people lose their jobs everyday due to poor management and bad decisions. This just happens to be a very public example of it.

Personally, I had stock in Merrill Lynch up to two years ago. I bailed about a year and half ago when the stock hit $80/share, chiefly because I didn't have much faith in O'Neal's abilities. Of course, I second-guessed myself when the stock surged to $95, but I'm glad I sold out when I did.

I don't think they have to cap their salaries, but they could change laws so that compensation is more closely tied to performance, eliminating these golden parachutes when people are being fired because of bad performance. I realize people lose jobs all the time because of poor management, but when they lose their jobs and get a small severance (if any) while at the same time the CEO is richly rewarded for his poor management, that's a problem.

Again, who defines the benchmarks of performance? What if a CEO is in the middle of repositioning a company for future growth and is not allowed to finish the job? After all, serious positioning requires short term pain, and some investors simply don't have the patience for it. Do you see how quickly regulations devolve into subjectivity?

[TitanTiger 20,511]

Again, who defines the benchmarks of performance? What if a CEO is in the middle of repositioning a company for future growth and is not allowed to finish the job? After all, serious positioning requires short term pain, and some investors simply don't have the patience for it. Do you see how quickly regulations devolve into subjectivity?

We can start somewhere and tweak as needed to deal with particular situations. Just because it won't always be perfect doesn't mean we shouldn't attempt anything at all. We could start by eliminating the obvious and egregious examples, such as this Merrill Lynch one. This bozo bet the farm on the housing market stabilizing and didn't just miss, he missed spectacularly. You have to be a special brand of dense to lose that kind of money, especially when you're bucking what most economists and other investors are saying about a certain course of investment. Let's start by dealing with situations such as these where no one is under any misapprehension as to whether it was a matter of repositioning or horrid performance and work from there.

[otterinbham 0]

Again, who defines the benchmarks of performance? What if a CEO is in the middle of repositioning a company for future growth and is not allowed to finish the job? After all, serious positioning requires short term pain, and some investors simply don't have the patience for it. Do you see how quickly regulations devolve into subjectivity?

We can start somewhere and tweak as needed to deal with particular situations. Just because it won't always be perfect doesn't mean we shouldn't attempt anything at all. We could start by eliminating the obvious and egregious examples, such as this Merrill Lynch one. This bozo bet the farm on the housing market stabilizing and didn't just miss, he missed spectacularly. You have to be a special brand of dense to lose that kind of money, especially when you're bucking what most economists and other investors are saying about a certain course of investment. Let's start by dealing with situations such as these where no one is under any misapprehension as to whether it was a matter of repositioning or horrid performance and work from there.

See, when you invite government into the halls of the executive suite, you're just playing with fire. The kind of regulation you propose is unenforceable and invites skullduggery on a scale that will make Enron look like a very minor problem. Anybody with a nodding aquaintance with accounting knows how easily you can cook the books when a $150 million exit package is on the line. At least with the system as it exists today, you do not discourage transparency on the part of a departing CEO.

So what if this guy made a horrible decision and still profited from it? I can bet you right now that 1,000 different corporate boards have looked at this guy and made the mental note that THEIR CEO compensation agreement won't allow this kind of abuse.

Every year or so, some executive gets paid handsomely while the company under his watch flounders. Or some other CEO makes a salary that's 1,000 times higher. And the bluenoses predictably start to froth at the mouth. But the only people who are affected by this are the shareholders and the employees (Almost all of whom happen to be shareholders, I bet).

While you love to express moral outrage at this, no amount of government intervention will work nearly as well as market forces. Because government will wreak havoc in this arena. Meanwhile, Merrill Lynch will take a hit that will prove instructive to business as a whole.

[TitanTiger 20,511]

The problem is, they don't learn. They don't adjust. Just as you every year or so, a CEO gets rewarded richly while the company burns beneath him and people lose jobs who don't have the cushy landing of tens or hundreds of millions of dollars to protect them. And then it just happens again as CEOs negotiate some kind of golden parachute in the event they utterly suck at their job while the average joe takes it on the chin...again.

I'm sorry, I'm a capitalist, but I'm not a laissez faire capitalist. Market forces aren't blind. There are people that help drive market forces and manipulate them to their benefit and to the detriment of others. Capitalism doesn't work without some effort to keep it honest and curb obvious abuses by those with their hands on the levers of power.

I just don't think some kind of intervention to stop an obvious wrong like this is asking too much.

[BamaGrad03 0]

Of course this is capitalism. Who are we to say what is TOO much for a CEO payout? It's not your company. It's not the government's place, and it's not the every day citizen's place.

And why is his tenure deemed a failure? OBVIOUSLY the firm made some money, otherwise his unvested stock wouldn't have been valued where it was.

To be able to pay 160 million dollars means he had to do something right. Otherwise they wouldn't have been valued highly enough...to cut the check. One could argue that his failures caused his buyout to be 160M instead of 360M. So essentially he's being punished 200M dollars worth for his failures. But you all see 160M and say that's too much money...because it's a huge dollar amount. So then we get into "how much is fair for him to be ALLOWED to earn"...and there lies a slippery slope.

If they vote to pay him that much, it's their business. Not mine.

[TitanTiger 20,511]

Of course this is capitalism. Who are we to say what is TOO much for a CEO payout? It's not your company. It's not the government's place, and it's not the every day citizen's place.

We're saying that in a situation where a company loses money and as a result people lose their jobs, it's wrong for a CEO to be rewarded for it. I don't care what they pay him if he leaves the company in good standing and had a successful tenure.

And why is his tenure deemed a failure? OBVIOUSLY the firm made some money, otherwise his unvested stock wouldn't have been valued where it was.

Because by the time he left, the net result of his tenure was that Merrill Lynch LOST $8 billion. He might have had some early success, but after it was all said and done, all that success was wiped away.

To be able to pay 160 million dollars means he had to do something right. Otherwise they wouldn't have been valued highly enough...to cut the check. One could argue that his failures caused his buyout to be 160M instead of 360M. So essentially he's being punished 200M dollars worth for his failures. But you all see 160M and say that's too much money...because it's a huge dollar amount. So then we get into "how much is fair for him to be ALLOWED to earn"...and there lies a slippery slope.

If they vote to pay him that much, it's their business. Not mine.

He lost them $8 billion. With a 'B.' That doesn't mean they lost every asset they had. They still have money, but the net result of his leadership tenure was a loss of $8 billion.

All I'm calling for is pay that's based on performance, particularly when it comes to these compensation packages after being fired. Capitalism is about good performance and good ideas being rewarded with what the market for that performance or idea allows. Capitalism is not based on rewarding abject failure. If anything, that's socialism: giving to people with no regard for their actual contributions and performance.

When you add in the number of jobs his performance cost people it just makes it that much worse.

[BamaGrad03 0]

Mr O’Neal’s departure follows the company’s admission last week that it had lost almost $8bn on mortgage-backed securities, making him the most senior executive to lose his job as a result of the US subprime mortgage turmoil.

That doesn't mean Merryl-Lynch lost 8B overall. It means they lost that on subprime mortgage risk. Like EVERY OTHER major firm in America. It doesn't take into account all the other places where they made money.

Market fluctuations and daily changing economic influences can reflect how much a firm profits. No one in the world, not even the Fed, foresaw such a huge impact from the subprime lending sector. Are you saying someone's performance over their entire tenure should be judged by a single market factor?

And who's to say they couldn't have potentially lost 16B and his efforts kept them from being even more in the hole?

We're saying that in a situation where a company loses money and as a result people lose their jobs, it's wrong for a CEO to be rewarded for it. I don't care what they pay him if he leaves the company in good standing and had a successful tenure.

That's not fair. Again, people get laid off every day. Doesn't mean their boss is doing a bad job. ESPECIALLY in giant financial institutions where they expendable income coffers grow and shrink on an hourly basis. How much of their job cuts were due to market influences that couldn't be helped by the CEO?

You can't blame him ultimately for all the job losses. Just like you can't blame the Ford CEO for cutbacks or give the Exxon CEO all the credit when they have money to hire new people.

[TitanTiger 20,511]

That doesn't mean Merryl-Lynch lost 8B overall. It means they lost that on subprime mortgage risk. Like EVERY OTHER major firm in America. It doesn't take into account all the other places where they made money.

Allow me to correct myself. He didn't lose $8 billion over his tenure. Merrill Lynch under his leadership lost $2.24 billion OVERALL just this last quarter. The $8 billion he lost in just the subprime mortgage area took them from profit to loss all by itself:

NEW YORK (AP) — The unfolding credit crisis has claimed its biggest corporate casualty so far: Merrill Lynch CEO Stan O'Neal.

The announcement of his departure Tuesday came after the world's largest brokerage posted a $2.24 billion quarterly loss, its biggest since being founded 93 years ago. Merrill Lynch did not name a replacement for O'Neal, whose ouster had been expected, and who leaves the company with benefits worth $161.5 million.

Laurence Fink, the chief executive of investment manager BlackRock Inc., turned down an initial overture from Merrill's board but is in active negotiations, according to a person with direct knowledge of the offer who was not authorized to speak publicly. With the presumed front-runner out of contention, filling the top spot at Merrill Lynch is not expected to be easy given the remaining unknowns from the global credit crisis.

Any replacement will face the daunting task of cleaning up investments in subprime mortgages and other risky types of debt, and rebuilding an investment house badly bruised.

There is speculation by a number of analysts that Merrill Lynch faces a $4 billion writedown during the fourth quarter. This would be on top of a $7.9 billion charge taken last quarter, a stunning amount since Merrill originally said it would write down only $4.5 billion because of credit market turmoil.

http://ap.google.com/article/ALeqM5htbf_g8...qyVqMgD8SJQ3NO4

Market fluctuations and daily changing economic influences can reflect how much a firm profits. No one in the world, not even the Fed, foresaw such a huge impact from the subprime lending sector. Are you saying someone's performance over their entire tenure should be judged by a single market factor?

And who's to say they couldn't have potentially lost 16B and his efforts kept them from being even more in the hole?

Because no one, not the man himself, not market analysts, not his attorneys, not Merrill Lynch: No. One. is saying that his efforts helped them lose less money than they would have. Contrary to the vast majority of people in the industry, it was his decision to invest so heavily in this area and his decision to stay invested even when almost everyone in the industry was saying "get out." He thought the market would stabilize. He was wrong. He cost his company $2.24B in one quarter overall. His insistence on staying in a crumbling market against all common sense took them from having about a $6B quartely profit to more than $2B in losses.

That's not fair. Again, people get laid off every day. Doesn't mean their boss is doing a bad job. ESPECIALLY in giant financial institutions where they expendable income coffers grow and shrink on an hourly basis. How much of their job cuts were due to market influences that couldn't be helped by the CEO?

There were people at Merrill Lynch that got laid off as a direct result of his bad performance. BG, his performance is not in doubt here. By anyone. It is universally being pointed to as bad. Awful. Terrible decision making and ridiculous risk taking.

You can't blame him ultimately for all the job losses. Just like you can't blame the Ford CEO for cutbacks or give the Exxon CEO all the credit when they have money to hire new people.

I didn't say every. But there were a lot of them. The bulk of the recent ones at his company were due to that ginormous quarterly loss. And that loss was almost all attributable to specific decisions he made as CEO.

The bottom line is, when someone is fired because of terrible job performance and losing the company billions of dollars, you don't reward them with $160 million, and office and a paid for executive assistant for the next three years. You especially don't do that when the results of his poor performance resulted in scores of people losing their much lower paying jobs that don't result in being rewarded with enough money that they would never have to work again.

I'm baffled as to why anyone would defend this or even think it should be ok.

[otterinbham 0]

See, here's what kneejerk reactions like yours don't really take into account. Last year, O'Neal's leadership helped Merrill Lynch garner all-time high profits of $7.5 billion, precisely because he steered Merrill Lynch into higher-yield, higher-risk areas of finance. At the same time, in order to achieve that profitability, O'Neal was forced to cut over 24,000 jobs, turning what was once a complacent operation into a much leaner profit maker. Further, over his five-year rein, his efforts increased stock value by 50% even after the fallout from the subprime mess. At it's peak, Merrill Lynch's stock value had increased by 100%, which is a very impressive performance no matter how you look at it. All because O'Neal had the energy and vision to take risks in the market.

So, considering all the profits he helped the company (and shareholders) make over the first four years of his leadership, his exit payment could and should be considered to be well-deserved. His body of work over the past five years should be taken into account, not just the past four months.

What's more, the subprime mortgage market didn't hit critical mass until this summer. Until that point, most financial analysts thought that the risk was well contained. So the worst thing you can say about the guy is that he listened to the prevailing wisdom of the times, rather than a small number of doomsayers.

Because I deal with a lot of banks who were heavily into mortgages (and because I am a risk-averse investor), I bailed out of three different stocks that were heavily vested in sub-prime mortgages. Merrill Lynch was one, Fannie Mae was another. Like I said in a previous post, I didn't ride those stocks to their peaks, but I'm glad I bailed when I did.

[TitanTiger 20,511]

See, here's what kneejerk reactions like yours don't really take into account. Last year, O'Neal's leadership helped Merrill Lynch garner all-time high profits of $7.5 billion, precisely because he steered Merrill Lynch into higher-yield, higher-risk areas of finance. At the same time, in order to achieve that profitability, O'Neal was forced to cut over 24,000 jobs, turning what was once a complacent operation into a much leaner profit maker. Further, over his five-year rein, his efforts increased stock value by 50%, a very impressive performance no matter how you look at it.

Yet his decisions forced the company to have write downs of more money than the all-time high profit of the previous year...in just one quarter.

So, considering all the profits he helped the company (and shareholders) make over the first four years of his leadership, his exit payment could and should be considered to be well-deserved. His body of work over the past five years should be taken into account, not just the past four months.

You have a point here. I can agree with that. However, these arrangements are typically not structured that way. This one in particular wasnt. They are negotiated up front before actual performance is even known. They could utterly suck the whole time and still get these sorts of cushy exit packages. And the company is contractually obligated to pay them.

All I'm asking is that such packages be correlated to actual performance. I think that's only right.

[otterinbham 0]

See, here's what kneejerk reactions like yours don't really take into account. Last year, O'Neal's leadership helped Merrill Lynch garner all-time high profits of $7.5 billion, precisely because he steered Merrill Lynch into higher-yield, higher-risk areas of finance. At the same time, in order to achieve that profitability, O'Neal was forced to cut over 24,000 jobs, turning what was once a complacent operation into a much leaner profit maker. Further, over his five-year rein, his efforts increased stock value by 50%, a very impressive performance no matter how you look at it.

Yet his decisions forced the company to have write downs of more money than the all-time high profit of the previous year...in just one quarter.

Yet, he increased the market capitalization of the company by tens of billions within five years, which is a far more reliable indicator of overall corporate strength. You simply cannot argue with that kind of performance.

[TitanTiger 20,511]

See, here's what kneejerk reactions like yours don't really take into account. Last year, O'Neal's leadership helped Merrill Lynch garner all-time high profits of $7.5 billion, precisely because he steered Merrill Lynch into higher-yield, higher-risk areas of finance. At the same time, in order to achieve that profitability, O'Neal was forced to cut over 24,000 jobs, turning what was once a complacent operation into a much leaner profit maker. Further, over his five-year rein, his efforts increased stock value by 50%, a very impressive performance no matter how you look at it.

Yet his decisions forced the company to have write downs of more money than the all-time high profit of the previous year...in just one quarter.

Yet, he increased the market capitalization of the company by tens of billions within five years, which is a far more reliable indicator of overall corporate strength. You simply cannot argue with that kind of performance.

Like I said, I can go along with taking a person's entire tenure into account. But that's not what actually happened here or what usually happens. In this situation, it was merely coincidental. This package was something that was contractually in place from day one and that is rather typical of executive compensation packages if he/she is fired or forced out. I'm just asking that such packages reflect a person's actual performance, and have that written in the contract, rather than just throwing money at them with no regard for performance.

[otterinbham 0]

See, here's what kneejerk reactions like yours don't really take into account. Last year, O'Neal's leadership helped Merrill Lynch garner all-time high profits of $7.5 billion, precisely because he steered Merrill Lynch into higher-yield, higher-risk areas of finance. At the same time, in order to achieve that profitability, O'Neal was forced to cut over 24,000 jobs, turning what was once a complacent operation into a much leaner profit maker. Further, over his five-year rein, his efforts increased stock value by 50%, a very impressive performance no matter how you look at it.

Yet his decisions forced the company to have write downs of more money than the all-time high profit of the previous year...in just one quarter.

Yet, he increased the market capitalization of the company by tens of billions within five years, which is a far more reliable indicator of overall corporate strength. You simply cannot argue with that kind of performance.

Like I said, I can go along with taking a person's entire tenure into account. But that's not what actually happened here or what usually happens. In this situation, it was merely coincidental. This package was something that was contractually in place from day one and that is rather typical of executive compensation packages if he/she is fired or forced out. I'm just asking that such packages reflect a person's actual performance, and have that written in the contract, rather than just throwing money at them with no regard for performance.

First of all, executives at this rarefied level aren't hired in the same way one brings aboard an assistant manager of a Burger King. For an organization such as Merrill Lynch, the executive typically provides about 50-100 pages of responses to a very lengthy and detailed questionnaire. Executives who are tapped to serve at the highest levels almost always have an extraordinary track record for success in previous posts, or else they would not be candidates in the first place. They are a known quantity in the marketplace, not a high stakes gamble. It is also for this reason that most credible companies have a 2-3 year succession plan. So a up-and-comer such as O'Neal might have to pause his career 2-3 years while waiting to assume formal command of the company.

Second, the candidate can't simply get by discussing his/her past qualifications and experience. The candidate must instead go into the interview with a full-blown vision for the company, complete with business plans and models, all of which must be vetted throroughly by the Board of Directors.

So there you have it. The candidate is already coming from a great position, deemed to be the highest caliber executive possible, and must demonstrate a clearcut understanding of where he's taking the company. In exchange for that plan, the board must provide very attractive incentives to bring the CEO on board, hence the negotiated exit packages. And the reason most plans cannot be tied strictly to performance is because there is a host of reasons that even a talented executive may have difficulty overcoming...entrenched culture, a conniving board, corporate raiders, hidden landmines in the books, etc. etc. Trust me. I've seen talented CEOs flame out for the stupidest reasons--very few of which were actually his fault.

All that being said, these packages are not generated in a vacuum. They are formulated to entice very qualified people from positions where they are already successful. And, when you look at the performance of O'Neal over the long haul, he earned every dime.