Tuesday, October 30, 2012

Fat Cats are harmful to companies

There are many kinds of animals in the stock market. We have the bulls, bears, stags, ostriches, pigs and fat cats. Among them, the fat cats are the most harmful to a company.

Literally speaking, a fat cat is a cat that eats too much and sleeps too much. The result is that it has become very fat. In stock market jargons, a fat cat is a different thing.

Investopedia defines a fat cat as:

Definition of 'Fat Cat'
A slang word used to describe executives who earn what many believe to be unreasonably high salaries and bonuses. These top executives also receive generous pensions and retirement packages, consisting of extra compensation not available to other company employees.

Investopedia explains 'Fat Cat'
This term conjures up the image of cats that consume more than an appropriate amount of food and become grossly overweight. 

Publicly-traded companies are required to disclose the amount of compensation that their top five executives receive. As a result, companies have been under a lot of scrutiny for excessive executive compensation, especially in the face of floundering revenues.

A real-life example of a fat cat would be former Disney CEO, Michael Eisner. For a period of five years in the late 1990s, Eisner received over $737 million in compensation, despite the fact that the company's five-year net income shrank an average of 3.1% each year.