‘Envy and greed walk hand in hand’: Warren Buffett says CEO pay reforms ‘backfired’

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Warren Buffett has warned that efforts to curb executive pay through mandatory disclosure rules have failed, fueling envy and greed instead of restraint.

In his final message to Berkshire Hathaway shareholders, Buffett said reforms requiring public comparison of CEO and employee compensation had the opposite effect of what reformers intended.

“During my lifetime, reformers sought to embarrass CEOs by requiring the disclosure of the compensation of the boss compared to what was being paid to the average employee,” Buffett wrote. “But the good intentions didn’t work; instead they backfired.”

He said that once pay figures became public, comparisons between companies drove compensation higher rather than lower.

“Based on the majority of my observations – the CEO of company ‘A’ looked at his competitor at company ‘B’ and subtly conveyed to his board that he should be worth more,” Buffett wrote. “The new rules produced envy, not moderation. The ratcheting took on a life of its own. Envy and greed walk hand in hand.”

Buffett added that corporate advisers and directors have rarely acted as a counterweight to the trend. “What consultant ever recommended a serious cut in CEO compensation or board payments?” he said.

Buffett made the comments as part of a wide-ranging message in which he confirmed that Greg Abel will take over as Berkshire Hathaway’s chief executive at year-end.