Berkshire Hathaway 1994 Annual Meeting Audience Question # 70

On Salomon CEO’s $24m bonus

Warren Buffett:

Zone 3?

Audience Member:

Chris Stavrou from New York.

According to the latest Salomon Brothers proxy, if [Chairman and CEO] Deryck [Maughan] earns 30 percent on allocated equity of Salomon Brothers, provided that that’s at least 10 percent above the return for competitors, he could earn a bonus of $24 million.

My question is whether that return number is reduced by a charge for preferred dividends?

Warren Buffett:

I, Charlie, do you remember on the comp committee…?

Charlie Munger:

I can’t remember the detail on that.

Warren Buffett:

I think the equity… I… my… I’m fairly sure, but I’m not positive, that the equity figure would include our preferred, but not non-convertible preferreds (sic).

And it would apply to the earnings applicable to the… to our preferred plus common, but not… but it would be after dividends on non-convertible preferred.

But I, you know, I’m not on the comp committee, and I have not read the description that carefully.

Charlie Munger:

Well, I am, and I can’t remember.

But I will tell you, one thing I do remember about that, and that is a target which would be one… would be hellishly hard to hit.

Warren Buffett:

It’d be unbelievable. I mean…

Charlie Munger:

That’s is, you’re talking about Babe Ruth…

Warren Buffett:

Squared.

Charlie Munger:

Yeah, doing 150 home runs in a season instead of a… if that happens, you’ll be very glad to pay the money.

Warren Buffett:

Very. Under either calculation, yeah. It really… but it, you know, I’m glad it’s there.

I hope Deryck’s paying attention to it.

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