Warren Buffett on Compensating Managers and Customers Tattooing Your Logo on Their Chest

I just returned from the 2010 Berkshire Hathaway Annual Conference. As I have stated before, I think this is the best business conference one can attend. Listening to (and applying) the wisdom of Warren Buffett and his partner Charlie Munger will help any manager and business owner improve their career/success. And with Berkshire B shares now trading at around $80 just about anyone can attend. If you can't go, read his annual letters to shareholders.

Each year I blog about my experience at the Berkshire conference and I try to make it relevant to human resources and marketing - the focus of this blog. Keep in mind that Buffett and Munger answer questions over a 5+ hour period and I am only highlighting a few minutes of their commentary.

Not a lot about human resources this year but in response to a question about how Berkshire compensates managers Buffett stated he never uses compensation consultants nor solicits HR advice - saying it "would be a disaster". He said every business is different, some take a lot of capital, some very little, some can be run by anyone, others not even by Alfred P. Sloan. It is therefore important to have a unique compensation plan for each manager based on the value they bring the business and "how wide of a mote they build around their business". Buffett says doing this takes only a few hours of his time annually (for the managers of over 50 Berkshire operating companies) and he has never had a manager leave Berkshire do to compensation reasons.

Note to HR - bring real business reasons and not "because this is what the national average is for similar positions…." when making compensation recommendations to management.

For our CEO readership, I found Buffett's comment about operating budgets quite interesting. Buffett said he does not set nor ask for budgets from his operating companies because having budgets only increase the temptation for fudging numbers. He also pays no attention to quarterly earnings (not even EPS). Instead, Buffett says he focuses on the "whole enterprise" and building long term value and will take larger lumpier earnings over smaller, smoother earnings.

Switching gears to marketing, Buffett (who owns several newspapers) paints a grim outlook for print newspapers saying the money to run a newspaper comes from advertisers and with subscription rates continuing to fall at alarming rates - even in prosperous areas (S.F. Chronicle circulation dropped 22 percent in last year) - advertisers are leaving. By the way, a recent PR Week survey found nearly 60% of journalists expect a further decline in print circulation and the growing importance of the Web and other online channels. Our own HRmarketer research confirms this and our entire product line is based on the fact that online visibility is more important than print visibility. But how many HR vendors still budget more for print advertising versus online marketing? A lot.

A a few amusing marketing moments at the meeting. One of Berkshire's companies, Geico, was selling very cool, high quality t-shirts and hats. I bought a hat and t-shirt and the grand total was a little over $10. When I asked how they could sell this stuff at such bargain basement prices the rep said "because it's free advertising for Geico". I love it (and I bought more).

And finally, a humorous look at the power of brands.

Berkshire invested in Harley Davidson and has done quite well. Asked why he invested in Harley Davidson Buffett said:

"I like the kind of business where your customers tattoo your name on their chests."

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