Warren Buffett’s conglomerate, Berkshire Hathaway, is one of the world’s biggest companies. The legendary investor is the CEO and chairman of the US$577 billion company and currently the fifth richest person in the world. However, his compensation is measly compared to the CEOs of big corporations.
The annual average salary of S&P 500 CEOs in 2019 is nearly US$15 million. But would you believe that since 1980, Buffett’s pay is only $100,000 a year? He recommends to Berkshire’s board of directors what his salary should be, and the amount is the same for several decades now.
While Buffett receives a moderate base salary compared to others, he is for incentivizing CEOs to deliver long-term success for their companies. He believes, however, that massive annual salaries, bonuses, and short-term stock options encourage short-term thinking.
In his 2007 letter to shareholders, Buffett describes executive compensations as irrational and excessive. The GOAT of investing clarified in 2014 that disclosing salaries of executives is not necessarily ideal. It could create an arms race and drive CEO compensations through the roof.
Buffett believes transparency has a drawback. Disenchantment could set in if executives look at somebody else’s salaries even though their pay is already enormous. He said once that paying well is correct, but it should be less for anything short of exceptional performance.
One-person compensation committee
At Berkshire Hathaway, Buffett is a one-person compensation committee. He decides alone on the CEOs’ salaries and incentives under his business empire’s significant operating businesses. He boasts that virtually none of his many CEOs left for other jobs.
Based on SEC filings, Berkshire’s vice-chairman and Buffett’s right-hand man, Charlie Munger, has received the same salary for years. There was no salary explosion for both through the years. The highest compensation Buffett ever received was $525,000 in 2010. He was paid $100,000 in salary, $75,000 in directors’ fees, and had a budget of $350,000 for security.
Attention to clean energy investments
People watch Buffett’s every move. In his most recent letter, the Oracle of Omaha notes the diminished appeal of the bond market in 2021. He prefers stocks, including the buyback of Berkshire shares.
Notable, too, is topic of clean energy. Buffett sees the need for a massive energy makeover. Berkshire Hathaway Energy, a collection of local utility companies, operates in the U.S. Midwest and West. For Canadian investors, a $5.44 billion renewable company from Calgary is an exciting green energy stock.
TransAlta Renewables (TSX:RNW) is Canada’s largest generator of wind power. In North America, it owns one of the largest wind portfolios. The primary focus is to build a pipeline of renewables in the home country, Australia, and the United States.
If you’re looking for value plus a long growth runway, consider TransAlta. Wind is the fastest-growing among all renewable energy sources. The company currently owns and operates 23 wind farms. Besides the wind, it has 13 hydro facilities, seven natural gas plants, and one each in solar and natural gas pipeline. If you invest today ($20.44 per share), this green energy stock pays a 4.78% dividend.
Warren Buffett’s Berkshire derives significant savings on CEO compensation. He owns approximately US$100 billion of his company’s stock. However, you won’t see him drive a luxury car or live a lavish lifestyle.
Speaking of Warren Buffett's very low compensation compared to other CEOs...
Motley Fool Canada's market-beating team has just released a brand-new FREE report revealing 5 "dirt cheap" stocks that you can buy today for under $49 a share.
Our team thinks these 5 stocks are critically undervalued, but more importantly, could potentially make Canadian investors who act quickly a fortune.
Don't miss out! Simply click the link below to grab your free copy and discover all 5 of these stocks now.
This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.
Fool contributor Christopher Liew has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Berkshire Hathaway (B shares) and recommends the following options: short January 2023 $200 puts on Berkshire Hathaway (B shares) and long January 2023 $200 calls on Berkshire Hathaway (B shares).