But after the subprime meltdown, Bear's stock began a long slide, and early this year, rumors circulated on Wall Street that the firm didn't have enough ready cash on hand. Last month, Bear's trading partners and clients began demanding their money, putting the firm at risk. In mid-March, to avoid bankruptcy, Bear Stearns reached an agreement to sell to JPMorgan Chase jpm for $2 per share (later raised to $10). After the deal, Cayne sold his stock for $61 million, enough to retire on but a fraction of what it had been worth a year earlier.
Building long-term value
According to Mark Van Clieaf, who runs compensation consultancy MVC Associates, the 12-month pay period makes no sense. "In a one-year period, anyone can make the numbers look good," he says. "If you aren't looking at measuring a business over a four-to-six-year performance period, you're going to mismeasure a business, because it takes that long for new investments to work their way through the profit-and-loss statements."
In recent years, boards of directors at companies such as General Electric, DuPont and AmEx have begun looking at long-term goals when structuring CEO compensation packages.
In the case of AmEx, the compensation of CEO Chenault is measured over a six-year performance cycle. Van Clieaf says AmEx's peers might have benefited from a similar pay plan.
"If that had been in place for most of the Wall Street CEOs, would they have made the risk and product decisions they did, knowing they would have to live with them? I'm not sure they would have," he says.