PERLMUTTER "GREED IS GOOD" MEETS MICKEY MOUSE

Folks, this is hardly new news nor is it the only example of the continuing saga of "executive greed" to show up in the past few weeks. But, it is a good example of of the clear lack of judgment by a Board of Directors, a story that is beginning to be heard over and over in the US and Europe. Don't get me wrong, I am in favor of people making as much money as they can and for incentivizing people to do things in the best interest of the shareholders. The Perlmutter story goes beyond the pale. It ventures into the colorful world of executive greed and Board justification that defies common sense.

A few weeks back, the Wall Street Journal reported that Chairman "Ike" Perlmutter received 1.27 million share options in the weeks one of his subordinates was talking to Disney about a closer relationship. Months after the initial discussions, Marvel and Disney agreed to merge. Sounds harmless, so far.

But, the shares were granted at around $23 per share. Eight months later, after the deal was announced, the share price hit $50 per share. Bingo, Perlmutter walks away with more than $34 million dollars for nothing but being at the firm an additional 8 months and agreeing to a deal that gives the shareholders $50 per share. Are you with me so far?

Perlmutter did a deal that was very beneficial to the shareholders. He should be applauded, you say? Well, he should, it was a favorable deal for the Marvel shareholders. Then why complain?

Perlmutter, before the options were granted, held 28.9 million shares of Marvel, or 37% of the total shares outstanding. His stake was worth $1.445 billion. That is not the problem, though. Perlmutter took Marvel and developed a solid franchise, one that he controlled through a mighty 37% of the shares. He earned every penny of the $1.445 billion, not only for what he did for Marvel, the compnay, but for the company's shareholders. Why would he soil his reputation and the merger with yet another example of executive greed?

The Board said they gave him more options because his contract was up in Nov 2009 and was part of an agreement to extend his contract. For years, Marvel had awarded executives restricted stock, not options. But, this year, only Perlmutter received options instead of restricted stock. The other executives received restricted stock, vesting over a period of time. This inconsistency is not, in itself a problem. The reasons given by the Board of Directors is the problem. Apparently the Board was concerned that Perlmutter did not have enough incentive to continue his strong performance. As reported in the Wall Street Journal article, this was the reason given to treat his option grants as options and not restricted stock and to grant them in the first place.

How much more incentive does a man need if he owns 37% of the company? If he screws up, it cost him in a reduced share price. If he takes the eye off the ball, he loses. If he works hard and does the right thing, he wins. Why can a Board not see that this man had enough incentive. Was there another reason for the grant. Could be?

This is just a clear sign of a Board of Directors detached from reality. Not only was the reason given faulty, but the timing has an appearance of pandering to the CEO, granting extra pay in the face of a merger. The need for Mr. Perlmutter to act in the best interest of the shareholders was present in his ownership of 37% of the company. That sounds like enough of an interest to keep his performance strong. A ill-timed, questionable grant of 1.27 million shares worth $34 million, or 2.3% of the vaue of his holding is hardly an incentive. It smacks of a Board of Directors under the control of a greedy executive looking out for the biggest paycheck, no matter what it looks like. It conveys a decision made by the Board that lacks credibility. The very thought that Perlmutter needed another $34 million to do the right thing for the company is ridiculous, utterly preposterous. It is something you would see out a cartoon book, not a cartoon Board of Directors.

Now, many of you out there will say, who cares, he made a lot of money for the shareholders. I can imagine no big shareholder will begrudge the extra $34 million. There are thousands of excuses, apologies, or dismissive words to describe their behavior as fiduciaries. There may be no difference between the vesting of the restricted stock and the employee options. That, too, is not the point. And, shareholders miss the point if they do not at least recognize that this is the very behavior that could bring excessive pressure from the Obama administration and the regulators to improve executive compensation standards. The Perlmutter flies into the face of the Obama administration's moves to reign in excessive executive compensation and greed. The Board's behavior furthers the argument for stricter compensation policies.

The last thing I want to see is the government setting executive compensation. But, corporations and their Board of Directors must take the lead and make sensible policies for executive pay, reign in incentives that will not work, like Perlmutter's bogus option to keep him performing strongly, and align the interests of the shareholders with the opinions and perceptions from Main Street. The vast majority of people are willing to see the masters of the universe make a lot of money for the effort the put out on behalf of the shareholders. But cases where some CEO schmo owns a large percentage of the company should not necessitate additional option grants to keep the CEO on the ball. The price of the stock should provide the incentive if that case. Boards need to stop justifying ridiculous decisions with the same old excuse as used with people who have little to no ownership of a company, yet need long term incentives to assure strong performance.

The Boards can do it or the regulators can do it. Who do you want setting compensation for executives? If you were Main Street today, you may be more comfortable with the regulators. Boards and CEOs need to start building credibility with Main Street. Hopefully Goldman Sachs will hear that when they decide to reward their culture of greed with pay above the 2007 levels after receiving a hefty amount of taxpayer dollars to tide them over the rough patch last year. I dare say, Main Street will feel they got screwed. I would have to agree. Not that the Money Machine has not performed exceedingly well, but we will never be able to know their true success. We can only glance a glimpse and then just only momentarily!

GOOD RIDDANCE, KENNETH

Remember, Kenneth, when you were in Kindergarten, how some of the kids would suck up to the teacher thinking they may be treated special if they were really, really, really nice to the teacher. Didn't work then, did it?

Then what in the hell were you doing back in the fall of 2008 forcefully arguing that all the financial chiefs should buckle under to the government's demands that the banks and financial institutions should take government money to ease the credit crunch. Were you thinking you will be rewarded in the future by regulators who may go softly on you and the organization? Didn't work, did it?

By December, your new friends in the government wanted to hear nothing about the possibility of backing out of the Merril Lynch deal. You said they forced you to do the deal against your better advise. Didn't work, did it?

When the public was outraged at the bonsus payments, you cried out that you and your organization had no hand in it, that it was done by someone else and that your friends in government knew all about it. Didn't work, did it?

In fact, you and your Board knew of the bonuses, it was part of the deal. Your friends in the government invited you to testify in front of Congress, only this time it was a new Administration, the Administration of the "Hopeful Messiah Obama". Barney Frank, Christopher Dodd and the band of merrymakers called the the democratically- controlled Congress were your new friends. It was payback time. Didn't work, did it?

Through the Spring and Summer, there was one lightening rod, it was you. If any CEO tried to wear the teflon coat it was you. Didn't work, did it? By mid summer, you did not need to know how to read tea leaves to realize you were toast.

Unfortunately, the great things you did for the little bank from the West when your little known east coast bank merged with Bank of America and you began an incredible run as a bank CEO. All that career, up in smoke over one last merger that would create a power house. Yes, congratulations on building a powerhouse financial institution. But, because of some serious missteps in this last acquisition, weak conviction, arrogance, and blame tossing, your successes have been blemished and you will be on the sideline watching as your company realizes the benefits of the Merril Lynch merger nd its large contribution to the earnings.

Oh, by the way, nice kiss-off pay. While your shareholders have seen there value drop significantly and will only recover over the next many years, you will be counting your $69 million exit pay. To bad your options are worthless. With some effort, you probably could have made a ton more money if you thought first about the shareholders and not about yourself. We at least are saved from that indignity, thanks to you.

With that, I say farewell, good-bye, and good riddance.

Wiedeking Hits the Jackpot after Losing Bet

Holy Mackerel! Talk about "pay-for-performance" executive compensation in Germany.
Wendelin Wiedeking took over a debt-laden luxury car maker and nursed it to a leader in the automotive industry. By that account, he deserves not only plaudits but financial rewards befitting a titan of industry.

Not so fast. Years later, Mr. Wiedking made a poor bet and lost. Wait a minute. it appears he did not lose. Porsche lost.

Earlier, Porsche had acquired some shares of Volkswagen, using an options strategy that included leveraging the power of the shares with debt to purchase options for enough shares to force a merger of Volkswagen and Porsche, with Porsche the surviving entity and Wiedeking on top of the throne. Considering this also involved an inter-family dispute, the majority holders of Porsche and Volkswagen were related. The "kissing-cousins" were jockeying for control of the combined companies.

Enter the financial meltdown, the seizure of credit markets, a ton of debt added to Porsche to execute the strategy, and a free-falling stock market. Boom! The options strategy is blown up and the company was left over-leveraged. Sound familiar, something your next door neighbor with a decent job but greed in his eyes did to trade up in to a more expensive house, refinance a number of times so he could by his boat, Porsche, and the latest LCD flat screen TV, only to wake up after the melt-down with too much debt to cover. Foreclosed!

So, Porsche needed a financial rescue. Enter Volkswagen, the pursued becomes the pursuer. Porsche is forced to merge into Volkswagen. Wideking's strategy blew-up the company. How is he rewarded for such a sterling performance? He gets �50 million. Now, that's pay for performance that should make the Managing Board of Supervisors feel proud!

How tone-deaf could a group of business leaders be to reward catastrophic performance with the riches of a kingdom. And, right under the nose of the EU minders, pushing to put limits on executive compensation to put an end to greed. Where was the Managing Board while Wiedeking was aboard his pony, sabers drawn, in hot pursuit of Volkswagen? Who was looking after the non-family shareholders?

Congratulations, Mr. Wiedeking on a job well done! Let us know in advance where your next job is so we can all short the company.