Warren Buffett, the billionaire US investor and chairman of Berkshire Hathaway, has criticised the pay policies of top US companies for recklessly rewarding the success of their executives but failing to punish poor performance.
The 80-year-old billionaire, known as the Sage of Omaha, called the boards of leading companies “negligent” for continuing to design remuneration packages that did not penalise corporate failure to the same degree as they rewarded success.
Speaking at the end of a four-day visit to India, Mr Buffett said the financial incentive structures for executives at top companies, particularly in financial services, needed to be overhauled in the wake of the global financial crisis.
He told a meeting of Berkshire Hathaway motor insurance policy holders in New Delhi that lessons had not been learnt from a period of market “craziness” over the financing of the US housing sector and the havoc it wreaked on the global financial system.
He was highly critical of the fortunes that leading US bankers had made in spite of the misguided strategies their institutions had pursued that brought the US financial system to the edge of an abyss and triggered a global recession.
“In the half a dozen financial institutions that needed help the most during the crisis, that were too big to fail …the managers which led them into the trouble in all cases went away very, very wealthy,” he said.
Mr Buffett, however, cautioned that there was no way to legislate to “eliminate bubbles”. He advised instead that investors needed to rely on their abilities to spot bad investments and give preference to well-understood investments in productive parts of the economy.
His comments have added significance because Mr Buffett invested $5bn into Goldman Sachs, the US investment bank, in 2008 at the height of the crisis.
He also slashed bonuses at Salomon Brothers, the US bank, after taking it over in the 1980s, prompting many staff to go elsewhere.
The US financier has a reputation for being outspoken and giving insights into his successful personal equity investment strategy with witty one-liners.
The chairman of one of the US’s largest financial services-led groups also has an uncanny knack of moving markets with his views.
While the downturn has taken a toll on many of his businesses, Mr Buffett has recently done some of his boldest deals, including investments in Goldman and in General Electric, the engineering group. Mr Buffett said his group was earning $15 a second from its investment in Goldman.
In a wide-ranging discussion with his Indian audience from the rising price of his farm in Nebraska to gold, Mr Buffett warned investors against US dollar denominated long-term fixed-income investments, because the currency’s purchasing power would decline in the coming years.
“If you ask me if the US dollar is going to hold its purchasing power fully at the level of 2011, five years, 10 years or 20 years from now, I would tell you it will not.” He advised against buying government bonds for a long time.
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