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Berkshire Hathaway Stock Price As An Agency Cost

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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.