Reply #28: Because you have the wrong definition of "performance".

[Igel]

Think of how many view Obama's stimulus. Under the stimulus, millions of jobs have been lost and the GDP has shrunk. It's an utter failure, right?

"Ah," many say, "but look at how many jobs were *saved*! The stimulus worked!"

Same with management performance. A wise board--"wise" here is contrastive and entails a comparison with a "foolish board"--will evaluate the CEO and his team carefully. They'll look at what they did: Were their choices sound? Was the business environment really predictable ahead of time, or only in hindsight? Did they do the best to mitigate damages? Have they done what is necessary, given the condition they found the company in, to make the company profitable or otherwise in accord with board mandates?

I watched a board give their CEO comparatively large bonuses as he destroyed the organization but made profits. The "profits" were accidental--in fact, if you look at how his organization faired in the early '90s it did sub par. He put in the minimum amount of time, played board politics instead of dealing with finances, and was lax and made many unsound decisions. He didn't earn his bonuses. The board was foolish. I joined the board and 11 months later I helped collect the CEO's keys and ordered the IT division to suspend his passwords after we caught him out-and-out lying to the board to save his hide. Two years later we had a new CEO, and we were losing money. The CEO was making sound decisions and undoing the damage, working 52 weeks out of the year, 60 hours a week, and getting the organization on a sound footing. There were calls for giving her no bonus since, well, the only possible good performance is being in the black. We gave her a performance bonus and got reamed out in the local press. We were forced in the next year or two to restrict her bonuses, and after I left the board and the organization was in the black the board again demanded that the CEO play politics and cozy up to the board members. She was fired/left after a couple of turbulent years, and it didn't take long for large bonuses to be awarded again for shoddy performance and sparkling flattery, and then for the organization to again be in the red.

You also have to watch the details in the "handsome packages". A lot of time the packages include retirement benefits (do you want your retirement benefits, if any, included as current income?) and deferred income (i.e., income that was awarded in previous years but not taken because, perhaps, the employee didn't want the tax consequences or the company would have trouble swinging the payment, politically or financially). Often they include stock options, guarantees to allow the CEO to buy stock at a given price regardless of market price. One notorious case recently cited had something like $17 million in stock options that could only be exercised after a few years, but the $17 million figure was based on the stock's worth when the compensation package was finalized. Oops: the guaranteed price was $53-something and the stock price a few days ago on the NYSE was $44. That $17 million in income is nonexistent, and only finally stops being <$0 when the stock price hits $53-something.