A Reflection On Sun Executive Payouts For Failure

With the Oracle/Sun merger finally completing at the end of January, one former Sun worker has taken the time to reflect a bit on the extravagant compensation and golden parachutes that the former executives at Sun are receiving for failing at their jobs. "I think it's fair to say that, for all the miscues that eventually led to its demise, the company created many products and technologies of value along the way, enough so that Oracle thought it was worth it to acquire them and try to keep them going. However, I think that it's equally fair to conclude that, after years of running losses, including about $2 billion in fiscal 2009, so that a buyout was necessary to avoid looming bankruptcy, Sun's executives did nothing to deserve lavish rewards, by any conceivable meaning of the word 'deserve.' But what actually happened is by now a familiar story. [...] And here's a prediction that I feel quite certain of: if, against expectations and my hopes, Ellison drops the ball and things start going south for Oracle, it's the employees who will suffer for it, and he'll be doing just fine."

Comments

To quote Mel: "Its good to be the King"

[Fallen Kell]

As almost always in big business, those in control will make sure that their personal interests are met, even at the expense of the company as a whole. It is more important that the board makes sure they all get several million payout should the company fall apart.

Re:To quote Mel: "Its good to be the King"

[jeffmeden]

Because when it's their *job* to look out for the interests of the employees and stockholders, and they instead look out for only their own interests, it becomes something completely different from self-preservation, motivation, or whatever you want to call it. It becomes greed. It is arguably theft. It is almost certainly evil. It is in no way, shape, or form a 'job well done'.

Re:To quote Mel: "Its good to be the King"

[ChatHuant]

"Since many board members are senior executives at other firms and sit on each others boards, there really isn't much incentive for them to not grant large parachutes and such. It simply wouldn't be rational to potentially jeopardize their own upcoming reward."

So, why don't the stockholder vote these board members out?

Of course, that's the simplistic answer. Reality is, as usual, more complex. There are many mechanisms in place that stop or deflect shareholder revolt. Some of the mechanisms are used by the boards themselves - information suppression or obfuscation (how many small shareholders are knowledgeable enough to understand the employment contracts of a CEO?), misleading reports, bad decisions that satisfy groups of shareholders (like paying dividends at the wrong time), and others . Some are not, like the inherent inertia of most shareholders, and especially the fact that many of the largest shareholders in major companies are institutional: banks, mutual funds, pension funds, investment companies. The boards of THOSE shareholders are exactly the people the GP was talking about, and they won't vote to replace their country club colleagues.

Ahh, the good old days...

[stokessd]

I loved my sparc 1+ with the funky ruled reflective mouse pad, and the quirky SunOS. For some reason I always wanted pizza for lunch after working on it all morning. Ahh those were the good days, oh mosiac how we used you to find things in the larval days of the web.

Linux really ate Sun's lunch. All the reasons to own a Sun largely evaporated with Linux. I say that as a researcher and end user, not a data center wienie. As soon as linux and commodity hardware got good enough, it was all over for Sun. I really feel bad (and old) but frankly I'm surprised that they lasted this long.

Sheldon

Re:How Companies Work

[Bruce Perens]

If those top managers are being paid in stock instead of in dollars, then clearly they are stockholders and hence their interests are one and the same as the stockholders. Which is the entire idea behind such compensation schemes.

Well, sometimes. In this particular case, the Golden Parachute was constructed purportedly to make a hostile take-over unattractive. Otherwise, perhaps Carl Ichan might have owned Sun before now. But it is not at all in the stockholders interest at this point.

We also have cases in which the managers receive different classes of stock from others. This seems to have been the case, for example, in the recent acquisition of Monta Vista, a former embedded Linux companies. The employees are said to have gotten $0 for employee stock, but some tiers of preferred stock took real money out of the company, as did the managers.

Re:Link to DailyKos diatribe?

[spun]

What's wrong with DailyKos? Do they, you know, actually lie, or do they just say things you don't want to hear? If you think they lie, provide a documented example.

Blah blah Kos blah blah

[idiotnot]

Golden parachutes aren't a Republican phenomena, and the Silicon Valley tech companies aren't exactly fertile ground for the GOP as far as fundraising goes.

Nor is rewarding mediocrity limited to the upper-echelons of society (see: Detroit).

What the author did get right is that the boards of directors make these decisions. In companies where a scant few hold lots of sway, they look out for themselves instead of the working minions. Think Carl Ichan ever got a raw deal on a company he came in and dismantled?

The fixes are simple, but neither political party has the political will to do it. The tax reforms in 1986 allowed most of this, and it benefits wealthy interests (read: donors) on both sides of the aisle. Think Bear Stearns was a high-time GOP operation? How about Fannie and Freddie?

1. Tax stock options as regular compensation, taxed at normal income tax rates. Tax it at the stock's full price on the day the option is exercised. If the option is never exercised, fine. The executive doesn't pay the tax.
2. Place a time limit on option execution.
3. Tax fringe benefits as compensation (hello, "Cadillac" health plans).
4. Encourage firms to hire executives on fixed-term contracts with fixed compensation. Stop making compensation based on stock price performance.

But it'll never happen. And, while I'm glad to see that they're taking notice, the stupid from dKos burns. It burns a lot.