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The Underappreciated CEO

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While politicians make headlines decrying CEO pay, executives must continue to be paid handsomely.

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Countrywide's (CFC) Angelo Mozilo announced last night he will forgo as much as $37.5 million in severance pay and other benefits upon completing the merger with Bank of America (BAC). Sears (SHLD) CEO Aylwin Lewis is heading to the exit at the end of the week amid a reorganization orchestrated by Chaiman Eddie Lampert.

On Wall Street, the well-documented departures of Chuck Prince from Citigroup (C), Jimmy Cayne from Bear Stearns (BSC) and Stan O'Neal from Merrill Lynch (MER) show that there may still be accountability at the top when leadership fails shareholders.

But while politicians make headlines decrying CEO pay, executives must continue to be paid handsomely. If they weren't, the incentive to work towards a position of high responsibility would be gone. Although some lousy managers may be overpaid in the process, we are still better for it.

The WSJ reports that despite nearly full employment, companies are having an ever-harder time finding competent managers to fill important roles. Multinationals are increasingly complex organizations, and the expertise and skill to successfully run these cannot be overlooked. High pay, perks and power encourage leaders and visionaries to rise to the top.

Conventional wisdom states that failed and fired CEOs are paid too much, their severance too generous, and after the losses incurred by the firm's shareholders, sending the chairman out with his wallet overflowing is tantamount to robbery. However, few consider the economic value CEOs of large corporations control, and how import their decisions are. Before we decry their lavish pay, we should consider what they really earned.

Take Mozilo, for example, who founded Countrywide almost 40 years ago and grew it into the nations largest independent mortgage lender. Countrywide's contribution to the expansion of home ownership and its revolutionizing of the mortgage industry has changed the lives of thousands for the better, the last few years notwithstanding. Should Mozilo receive a huge check on his last day on the job? Probably not, but to criticize one of the most successful American entrepreneurs in recent history for profiting handsomely from his hard work and dedication is to ignore the very principals of capitalism.

And while one may argue that Chuck Prince did not create a ton of economic value during his tenure at Citi, his decisions affected over 300,000 people worldwide. The immense responsibility held by CEOs of large corporations must come with high compensation, or no one would take the job.

Bill Gates became the richest man in the world while many criticized him for not being generous enough with his money. He is now stepping down to use his wealth and influence to lead the fight against the AIDS epidemic in Africa. To risk a couple Mozilos or Princes for just one Gates would be a winning trade every time.
Position in SHLD

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