The Peter Principle

Big Bonuses Still Flow, Even if Bosses Miss Goals
By GRETCHEN MORGENSON

It was the kind of mistake that wage slaves can only dream of. Because of what the company called an "improper interpretation" of his employment contract, Sheldon G. Adelson, chairman, chief executive and treasurer of the Las Vegas Sands Corporation, received $3.6 million in salary and bonus last year, almost $1 million more than prescribed under the company's performance plan.

Four more top executives of the Las Vegas Sands, which owns the Venetian Resort Hotel and Casino, received more than they should have. The total in excess bonus payments for the five men was $2.8 million.

The compensation committee of the board conceded that it had made an error. But it said that "the outstanding performance of the company in 2005" justified the extra money, and it allowed the executives to keep it.

Shareholders of Las Vegas Sands did not fare as well. The value of their holdings fell 18 percent last year.

As executive pay packages have rocketed in recent years, their defenders have contended that because most are tied to company performance, they are both earned and deserved. But as the Las Vegas Sands example shows, investors who plow through company filings often find that executive compensation exceeds the amounts allowed under the performance targets set by the directors.

Executives of companies as varied as Halliburton, the military contractor and oil services concern; Assurant, an insurance company; and Big Lots, a discount retailer, all received bonuses and other pay outside the performance parameters set by the boards of those companies.

It is the equivalent of moving the goalposts to shorten the field, compensation experts say.

"Lowering the hurdles is especially disconcerting because very often the goals are not set all that high to begin with," said Lucian Bebchuk, professor at Harvard Law School and author with Jesse Fried of "Pay Without Performance." Mr. Bebchuk said shareholders should be especially alert to increases in bonuses because more companies were shifting away from stock options and into cash incentives.

Some employment agreements actually stipulate that they will provide bonuses even if company performance declines. The agreement struck in 2004 by Peter Chernin, president and chief operating officer of the News Corporation, entitles him to a bonus even if earnings per share fall at the company. If earnings rise by 15 percent in any given year, Mr. Chernin's bonus is $12.5 million. But if they fall 6.25 percent, Mr. Chernin's bonus is $4.5 million, and an earnings decline of 14 percent translates to a $3.52 million bonus.

Last year, Mr. Chernin received $8.3 million in salary and $18.9 million in bonus pay. A company spokesman declined to comment on the bonus structure. He confirmed that the company's chief executive, Rupert Murdoch, has a similar bonus arrangement. Company filings show that Mr. Murdoch received a bonus of $18.9 million last year.

The rich really are different than you and me. The culture of the extremely affluent has no accountability. This sort of flies in the face of the American myth that you do well by working hard and doing a good job. Above a certain level, that's a crock. The very wealthy protect each other and create a culture of incompetence that's insulated by money. Our very own W is the product of this culture.