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2/2/2011
05:26 PM
Bob Evans
Bob Evans
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Global CIO: Sam Palmisano And Larry Ellison Deserve Their Big Paydays

The anti-capitalism community will howl, but the CEOs of IBM and Oracle deserve every penny of their big comp deals. Sorry, howlers, but the numbers tell the story.

As corporations close their books on 2010 and begin releasing information on executive pay, you can bet that the various constituents making up the Indignance And Outrage Lobby will soon be wringing their hands, wailing lamentations, and petitioning Congress over CEO compensation and the yawning gap betwixt it and what we mere mortals make.

In what would be my perfect world, each of those whiners would be free to screech to his/her heart's content about this phony-baloney injustice but each would first have to go stick his/her head in a bucket (or in any other cozy compartment) so that the rest of us wouldn't have to hear it.

Because the very same capitalist system that has given this country the best standard of living in the world and the most opportunity for its citizens also gives private enterprises the right to compensate their CEOs as lavishly or as appropriately as they may choose. And in almost every case, the free market gets it right.

Sure, there are exceptions, and some corporate scoundrels bend the rules or are in cahoots with their boards to ensure that compensation remains disconnected from performance and shareholder value. But such examples are rare—that's why they get so much publicity when the scoundrels are finally flushed out and face the disgrace they deserve.

Far more common are companies like IBM and Oracle, whose appropriately highly paid CEOs (Sam Palmisano and Larry Ellison) generate the vast majority of their compensation from performance-based incentives tied to the overall fortunes of their companies earnings and stock prices. IBM has just disclosed some details relating to CEO Sam Palmisano's incentive compensation, so let's take a look at that.

From a recent news story out of North Carolina's newsobserver.com:

" IBM nearly doubled the incentive pay for CEO Samuel Palmisano in 2010, the technology company reported in a regulatory filing Friday.

"Bloomberg News reported that Palmisano, who has led the company for eight years, received $9 million in incentives compared to $4.75 million the prior year. His full compensation package will be reported later.

"IBM reported profit for the year of $11.52 a share, which beat the company's target. IBM is one of this region's largest private employers, with about 10,000 workers at its Research Triangle Park campus." (End of excerpt.)

Yes indeed, the company's profit surely did "beat the company's target"—it did so by a wide margin. In fact, I found it odd that this same article that was so eager to point out that Palmisano's incentive compensation almost doubled from the previous year chose to devote only five words in trying to describe the rationale for that big boost: "which beat the company's target."

For a much richer look at what Palmisano and IBM achieved in 2010, here are some details from a recent news story by my InformationWeek colleague Paul McDougall, reporting on IBM's plan to grant $1,000 in stock incentives to all non-executive employees in return for the company's great year. From McDougall's article:

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