It's a lot of work being on a board of directors. You have responsibilities too.
Actually, it's more about responsibilities than work. Believe me, I've been a director.
Take the big banks, for instance. With all their problems they must have a lot of board meetings. Talk about work and responsibility. Forget the compensation, it's not worth it.
Well, maybe it is for some directors. After all, these days a few hundred thousand dollars a year for making a bunch of meeting in exotic places – sometimes – and staying at top notch resorts and hotels, and eating all that rich food, is still worth the tip money.
According to compensation data firm Equilar, in 2011, the last year Goldman Sachs' numbers were available, they paid their 13 directors an average of $488,709, annually.
That's up 50% from 2008, which was a not such a good year. But it pales in comparison to 2007, which was a very good year, when directors averaged $670,295.
Here is just a sampling of compensation figures.
Equilar reported that, in 2012 Morgan Stanley directors averaged $351,080. Bank of America directors averaged $275,000. J.P.Morgan Chase directors got $278,000. Citigroup directors got $315,000. And Wells Fargo directors earned $299,429.
Now, don't get me wrong. I would love to make that kind of compensation. Stocks are fine – if I can hedge them. Cash or stock grants or any of the other stuff… Maybe a loan or a special mortgage… Whatever. I'm on the Team, gosh darn it!
But it doesn't matter. As Dire Straits said, it's good "money for nothing."
Making meetings is work. Work, to me, is being required to be somewhere at some time to take care of your business. That's work.
Now, if your work is eating and drinking and talking, or napping while other people are talking – or not talking – then that's what I call a cushy job. A lot of directors think that is what they're brought in to do – or not do. But it's still work.
And, like a lot of jobs, if you show up for work, you get paid.
The other part of being a director is the part that matters. It's the part of the "job" that isn't talked about.
It's the responsibility thing.
The truth about the big banks is that their directors are (supposedly) responsible for their corporations. But they don't take responsibility for doing their jobs at anywhere near the level that they should.
CEOs and everyone on down the line gets blamed – and they should – for their misdeeds. But no one blames the (usually) nameless directors.
They get paid a tiny fraction of what their executives – the ones they pick – get paid, from the compensation packages that they, the directors, grant them.
The executives pay their traders and rainmakers a ton of money to make them look good to the directors. And if they all make a lot of money, the board of directors has the power to give themselves raises and bonuses, too. Sweet!
The top-top dogs, the directors, executive and non-executive directors, are responsible for the mess they allow their companies to sink into.
But, because they're mostly hand-picked by the cronies and sycophants on boards, they mostly act like traders in the trenches, figuring out how much risk they can take to get paid more at the top.
If they screw up royally, they have elaborate insurance policies that the company pays for to shelter them from the God-awful judgment and flagrantly abandoned responsibilities they were hired to exercise in the first place.
Nothing ever happens to them. They are the ultimate protected class.
There's nothing wrong, in my playbook, from paying directors gigantic amounts. Even a lot more than what they are being paid now, even for a "part-time" job. If they do their jobs responsibly, then they're worth it.
The problem is that they don't do their jobs and they aren't responsible for what happens.
I'm speaking about banks, in particular, but this applies to all corporations. Let directors earn what they're worth. But if they fail, claw back all their compensation and make them pay all the insurance premiums shareholders paid out to cover their worthless behinds.
Okay, you directors out there, let's hear what you have to say about that.
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About the Author
Shah Gilani boasts a financial pedigree unlike any other. He ran his first hedge fund in 1982 from his seat on the floor of the Chicago Board of Options Exchange. When options on the Standard & Poor's 100 began trading on March 11, 1983, Shah worked in "the pit" as a market maker.
He helped develop what has become known as the Volatility Index (VIX) - to this day one of the most widely used indicators worldwide. After leaving Chicago to run the futures and options division of the British banking giant Lloyd's TSB, Shah moved up to Roosevelt & Cross Inc., an old-line New York boutique firm. There he originated and ran a packaged fixed-income trading desk, and established that company's "listed" and OTC trading desks.
Shah founded a second hedge fund in 1999, which he ran until 2003.
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