Bottom Line Up Front: Long before “skin in the game” became popular corporate jargon, Warren Buffett was already promising Berkshire Hathaway shareholders something far rarer than bold forecasts or flashy incentives: alignment. In his 1994 shareholder letter, Buffett made it explicitly clear that Berkshire’s managers would win and lose alongside shareholders, with no asymmetric compensation schemes and no side bets elsewhere. More than three decades later, after Berkshire Hathaway (BRK.B) (BRK.A) has compounded into one of the largest companies on Earth, that promise may be one of the most underappreciated reasons investors have trusted Buffett for so long.
The Details: In 1994, then-CEO Buffett was already wrestling with the idea that Berkshire’s future returns would be more modest than its past. Rather than dressing that reality up, he confronted it head-on. He told shareholders that they should expect more modest gains going forward, but that whatever the outcome, it would be shared equally.
“If you suffer, we will suffer; if we prosper, so will you,” he wrote. That line wasn’t rhetorical. It was a statement about incentives, behavior, and trust at a time when executive compensation across corporate America was beginning to tilt sharply toward upside-only rewards.
Buffett was also unusually direct about what Berkshire would not do. He promised that the company would not introduce compensation structures that allowed management to participate more in the upside than the downside. In other words, no “heads-I-win, tails-you-lose” arrangements. That stance ran counter to the direction most public companies were heading, where stock options, performance bonuses, and complex incentive plans increasingly rewarded short-term gains while insulating executives from long-term consequences.
Despite this warning, shareholders who stuck with Buffett still saw substantially outsized returns in the years following. In fact, the years to follow all vastly outperformed the S&P 500 Index ($SPX) in the lead-up to the 2000 crash.
The alignment extended far beyond compensation. Buffett made a second promise that was even harder to fake: his personal net worth would remain overwhelmingly concentrated in Berkshire shares. He and his late, longtime business partner Charlie Munger would not ask shareholders to invest alongside them while quietly putting their own money elsewhere. Berkshire wasn’t just something they managed; it was where their wealth lived. If Berkshire underperformed, their lifestyles would feel it. If it succeeded, they would benefit in exactly the same way shareholders did.
Buffett emphasized that this alignment extended well beyond himself and Munger. Berkshire stock dominated the portfolios of their families and of many longtime friends who had invested with them decades earlier, back when Berkshire was still a small partnership. That detail mattered because it quietly raised the stakes. Decisions weren’t being made in an abstract boardroom for anonymous shareholders; they affected people Buffett and Munger saw at family gatherings and reunions. That’s a different kind of accountability than quarterly earnings calls can provide.
From an investing perspective, this promise explains a lot about how Berkshire has operated over time. The company has avoided leverage that could juice short-term returns but risk catastrophic loss. It has resisted fads that might have flattered annual results while undermining long-term value. And it has been willing to sit on large amounts of cash (even when critics complained) because the downside of overreaching would be felt personally by management, not just theoretically by shareholders.
In today’s market, where executive pay packages often resemble option-heavy lottery tickets and CEOs regularly diversify out of their own stock as soon as possible, Buffett’s 1994 pledge reads almost like a rebuke. Many leaders talk about alignment. Buffett institutionalized it. He removed the escape hatches that make bad incentives survivable for insiders but costly for owners.
Three decades on, Berkshire’s scale has changed dramatically, and Buffett has been candid that future returns will likely be less impressive than in the company’s early years. But the core promise he made in 1994 remains intact. Shareholders still own a business where management’s financial fate is inseparable from their own. In an era obsessed with performance metrics and incentive design, that simple bond, shared risk, shared reward, may be one of Berkshire Hathaway’s most durable competitive advantages.
On the date of publication, Caleb Naysmith did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
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