A Good Compensation System

By Ramesh Akkineni
A distinguishing characteristic of H. H. Brown is one of the most unusual compensation systems I've encountered - but one that warms my heart: A number of key managers are paid an annual salary of $7,800, to which is added a designated percentage of the profits of the company after these are reduced by a charge for capital employed. These managers therefore truly stand in the shoes of owners. In contrast, most managers talk the talk but don't walk the walk, choosing instead to employ compensation systems that are long on carrots but short on sticks (and that almost invariably treat equity capital as if it were cost-free). The arrangement at Brown, in any case, has served both the company and its managers exceptionally well, which should be no surprise: Managers eager to bet heavily on their abilities usually have plenty of ability to bet on. - from Buffett's 1991 Letter

Popular posts from this blog

It Pays to be a Nervous Wreck

By Ramesh Akkineni
from an article in Livemint Two weeks ago, Microsoft issued the sort of quarterly report usually seen of a company in finest mettle. Redmond’s sales were up 15% and profit double that, excluding certain deferrals. And the rest of the year, it projected, would be just as sanguine—certainly unlike in the economy as a whole. Elsewhere, that would be a mandate for staying the course. In Redmond, though, they were crossing off days on their calendars, waiting until Friday, the first day of February and thus the first opportunity Microsoft would be able to truthfully state, “Okay, Yahoo, it’s been a year since we talked to you guys; where’s the beef?” Microsoft remains obsessed about Google because it reads the same things everyone else does about how Google’s style of free, “in the cloud” computing means the slow and steady decline of Windows and Office. That’s a technical debate, one in which both sides have good arguments. But....
Read more

Korean Model

By Ramesh Akkineni
from an article by Ha-Joon Chang in the Guardian In my lifetime Korea has lived through one of the greatest development miracles – half a century ago, its annual per capita income was around £50, less than half that of Ghana at the time. Today, it stands at £12,000, putting it on a par with Portugal and Slovenia. How was this possible? Korea of course did things that most people agree are important for economic development, such as investment in infrastructure, health and education. But on top of that, it also practised many policies that are now supposed to be bad for economic development: extensive use of selective industrial policy, combining protectionism with export subsidies; tough regulations on foreign direct investment; active, if not particularly extensive, use of state-owned enterprises; lax protection of patents and other intellectual property rights; heavy regulation of both domestic and international finance. The Korean experience shows that sustainabl...
Read more

Maxims from Poor Richard 3

By Ramesh Akkineni
Image
from Poor Richard's Almanac, 1735 Look before, or you'll find yourself behind. Bad Commentators spoil the best of books, So God sends meat (they say) the devil Cooks. Approve not of him who commends all you say. By diligence and patience, the mouse bit in two the cable. Full of courtesie, full of craft. A little House well fill'd, a little Field well till'd, and a little Wife well will'd, are great Riches. Old Maids lead Apes there, where the old Batchelors are turn'd to Apes. Some are weatherwise, some are otherwise. Dyrro lynn y ddoeth e fydd ddoethach. The poor man must walk to get meat for his stomach, the rich man to get a stomach to his meat. He that goes far to marry, will either deceive or be deceived. Eyes and Priests Bear no Jests. The Family of Fools is ancient. Necessity never made a good bargain. If Pride leads the Van, Beggary brings up the Rear. There's many witty men whose brains can't fill thei...
Read more