Buffett prepares to pass on the baton

Warren Buffett has said he will pay low salaries to candidates to succeed him as chief investment officer of Berkshire Hathaway Inc, but offer incentives for outperforming the market.

Buffett, 76, said he has received some 600 to 700 applicants to become CIO, and said he might choose as many as four candidates.

Referring to the money manager William Ruane, a friend and Columbia University classmate who died in 2005, Buffett said he might "find three of what look like to me like young Bill Ruanes," and award each $2 billion to $3 billion to invest.

He said he would probably pay "a small salary, less than they were making previously," and an amount based "on a five-year basis, probably, of the percentage by which they beat the S&P (Standard & Poor's 500 stock index)."

It is a similar arrangement that Lou Simpson, who runs the equity portfolio of Berkshire's Geico Corp auto insurance unit, took when he joined. In his annual shareholder letter, Buffett said Simpson would have been his choice as CIO if he were more than a mere six years younger.

Ruane invested more than one-fourth of his Sequoia mutual fund in Berkshire stock. The fund still invests 28.7 percent of assets in Berkshire, according to Morningstar Inc.

Referring to New York Yankees' third baseman Alex Rodriguez, Buffett said: "When A-Rod goes to bat, he is in control of his batting average. If he does a good job and the rest of the team falls on its face, we'll pay him.... If he falls on his face and the rest of the team wins the World Series, we're not going to pay him."

Buffett said it's "not necessarily" a requirement that a CIO candidate live in or move to Omaha, Berkshire's home.

He again said he wants CIO candidates who can think about and are prepared to deal with unforeseen events, and said he wants one who will invest in things other than equities, such as bonds and currencies. Separately, Buffett said he still has three internal candidates, all men, for his chief executive officer role, and one who would step up immediately if Buffett could not serve.

"He would have the confidence of the organization, he would be steeped in the Berkshire culture, he would be a sensational businessman," Buffett said.

Buffett also maintained, as he often has: "I feel terrific."

Agencies

(China Daily 05/08/2007 page16)