The stunningly high price of Berkshire Hathaway stock—now over $100,000—might make many companies consider a stock split. Investors like splits because they can make the equity trade easier. There’s a far more limited numbers of buyers for a stock priced at $100K than at $100. But Berkshire Hathaway has refused to split its stock despite the constraints this might put on the liquidity of the stock.
Today we learned why. CNBC’s Liz Claman spent six hours with Berkshire boss Warren Buffett yesterday, and the Oracle of Omaha revealed why the stock doesn’t split—his salary is directly tied to the price of the shares. His pay is based on the market price of the company’s shares, so any split would reduce his pay.
Of course, the company could always split adjust his pay, so this isn’t entirely a serious answer. But it demonstrates how a metric designed by bring management’s incentives in line with shareholder interests can have perverse effects. Linking executive pay to stock price seems like a good idea but here we see it acting to deny shareholders the value of a stock split.
Archive for October 2006
Okay. Thanks to our well-informed and gossipy readers, we’re starting to fill in the details for a few of the new Goldman partners. Go team!
We’ve got some information on six of the newbies. That leaves 109 to go! And even on the folks we’ve been able to get something, there’s still a lot of information we need to know. (And, of course, even what we do “know” is more or less unconfirmed right now.) So keep your comments and emails coming. We’ll keep updating our new partner database as we go along.
Susan J. Scher—Capital markets, New York. Middlebury undergrad, MBA Columbia Business School (1991). Started at Salomon Brothers before business school, returned there afterwards. At Goldman since 1997. Better known as Susie. (Pictured left.)
Peter Comisar—Investment banking. Possibly based out of Los Angeles.
Jin Yong Cai—Goldman Sachs Asia. Hong Kong. Commenters view: “a jerk” with “good family background which comes in very handy for a firm like GS in cracking China deals.”
Richard A. Kimball Jr—New York. Son-in-law of Blackstone chairman Pete Peterson.
Tim Flynn—Co-head of European leveraged finance. London.
Simon Mansfield—head of European distressed debt trading. London.
Lucas van Praag is spokesman and head of Global Communications. Commenters view: van Praag “must be the best paid PR in the world!”
WallStrip keeps getting better. This morning’s episode was the best one yet.* Think The Office meets Thank You For Smoking.
* Best one not featuring DealBreaker, that is.
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Growing Funds Fuel Buyout Boom (WSJ)
News about private equity has become something of a bore lately. Record buyouts? Check. New fund breaks record? Check. Record annual bonuses…. etc. So, yeah, just to make sure we’re not leaving out anything important, some private equity players have been raising some really massive funds lately, which means that the size of vulnerable companies is growing, which means we’re probably going to see a record buyout fairly soon… and the cycle continues. And while we’re round up the PE news, Yankee Candle is being taken private by Madison Dearborn for $1.4 billion. The firm says no store closures or layoffs are expected. What kind of deal is that? Also, it was revealed yesterday that Clear Channel is in talks with all of the usual suspects about being taken private.
Daimler Minus Chrysler = Pure Speculation (NYT)
Are all of the big mergers of the 90s bound to get unwound. Almost since the day it was completed, there’s been talk that Time Warner may one day bid adieu to AOL, a partner it should never have gotten together with. And in recent days there’s been more talk that Daimler and Chrysler would go back to just friends. At this point, there’s no substance backing up the rumors, but management won’t publicly rule the possibility out, which apparently is enough to stoke the flames, even though they’d pretty much have to say that. We assume that if they broke up, in the divorce proceedings, Daimler would get to keep Dr. Z., which would be rough on Chrysler.
SEC seen investigating 27 mutual fund firms (Reuters)
Stories about mutual funds always feel pretty quaint, seeing as nobody invests in mutual funds anymore. Index funds and ETFs, sure, but not mutual funds. Contributing to their plummeting caché, the SEC may investigate 27 mutual funds for improperly using money from the fund for marketing purposes. Whether there’s a legal defense or not, it sounds seedy. See when the SEC investigates mutual funds, it just makes them look bad, whereas the hedge fund industry only looks cooler when regulators try to do their best to bring down the hammer on them. Even cooler is that when the SEC comes knocking, hedge funds just flip ‘em the bird, and get away with it. So you can see why the money flows the way it does.
Oil Trades Above $61 a Barrel on Unexpected Drop in U.S. Supply (Bloomberg)
Is the cartel getting its house in order? Oil has moved back above $60, the first solid gain for the brown stuff since it started falling. Supply numbers came in surprisingly light, which is being attributed to some combination of higher US demand and lower supply from the Mideast (duh). But weren’t the cuts basically just announced this last week? Do they really work through the system that quickly? Maybe it’s just speculators again, driving the price of oil up, as they always do.
$$$B-school rankings: putting in your two cents. [Banker's Ball]
$$$“Busty blond saint seeking Wall Street Commando” has change of heart. [Wall $treet Folly]
$$$Defending the bull [Crossing Wall Street]
As it turns out, we’re not quite alone in lamenting the quasi-life sentence handed out to Jeff Skilling yesterday. Twenty-four years seems an awfully long time for what Skilling was convicted of to a lot of other folks as well.
• Larry Ribstein says “the lynch mentality that has surrounded Skilling and Lay is appalling” and notes that Skilling got “13 years longer than Al Capone.”
• Ellen Podger asks “If we are so intent on punishing the wrongdoer with heavy prison time, then how can we accept Andrew Fastow being sentenced to 6 years, or Scott Sullivan receiving 1/5 of the sentence received by Bernie Ebbers. It becomes clear that what we are really doing here is punishing individuals who exercise their right to a jury trial. And permitting the government to continue this practice is not proper.”
• Geoffrey Manne says: “…Skilling’s sentence is problematic not only because…it is probably disproportionate to the actual crime (which I take it is the point Dave wants to see the rest of us make about drug prosecutions), but also and primarily because the costs of excessive prosecution are so large.”
• And Christine Hurt explains why defending Jeff Skilling is hardly indefensible.
Wow. That’s a pretty smarty pants group of folks coming in on the DealBreaker tequila soaked Skilling Prison Blues side of things. Which is kind of scary. Usually when this many academic types start to agree with us we start wondering if we’ve got it wrong.
Today is the day. Goldman Sachs named 115 partnership managing directors, according to an internal memo obtained by Reuters and DealBook. (Hey, send us a copy!)
Partnership managing directors, or PMDs, get an increased base salary, the opportunity to invest in Goldman deals, a discount on Goldman stock purchases and a share in the partner compensation pool, among other perks. These latest PMDs join the firm’s existing 287 partners.
Last year, the group received more than $2 billion in bonuses, about 20 percent of total compensation paid to some 25,000 employees. That works out to nearly $7 million per PMD on average.
And based on the $36 billion in revenue analysts expect Goldman to generate this year, the expanded pool of PMDs could receive nearly $9 million each.
There’s really no equivalent to anything else like a Goldman partnership in the modern business world. It’s almost archaic in the vast elevation of wealth and status it can bring to those who receive it. Some have compared it to the equivalent of getting “made” by the mafia. But that seriously underestimates what it means to be a Goldman partner. It’s more like being knighted on the battlefield by King Arthur, only this time the battlefield is the global financial market and the Holy Grail is, well, money.
After the jump, read the names of the 115.
[Bonus: If you know what any of these folks do at Goldman, send us an email or leave a note in the comments. It should be interesting to find out which groups at Goldman did well in terms of partnerships.]
Goldman names 115 partner managing directors [Reuters]
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