Fat Cat

What Is a Fat Cat?

The term "fat cat" is a slang description of 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.

Understanding the Fat Cat

The term "fat cat" 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 intense scrutiny for excessive executive compensation, especially in the face of floundering revenues. Fat cats are often regarded as having vast amounts of capital at their personal disposal. In addition to any executive position or board memberships the individual may hold, a fat cat may also possess considerable influence in social, community, political, and business communities.

How a Fat Cat Leverages Influence

The assumption is that fat cats have a proven understanding of how to generate wealth on a substantial scale and that their input is believed to generate lucrative results.

For instance, a fat cat may have earned a sizable payout from a lucrative venture, such as the sale of a company they helped found or grow earlier in their career. Along with the cash from the deal, the individual may have developed clout and a considerable reputation among their peers. The influence and leverage a fat cat might exert can stem from tangible activities, such as becoming an investor in early-stage companies and startups.

Fat cats might establish organizations, funds, or other platforms that allow them to actively leverage their wealth to support some endeavor. Political campaigns might seek the support of fat cats for their access to capital for funding and for the influence they can exert with other potential donors and voters.

A fat cat might also broker business deals and arrangements through the connections they have developed. This influence could potentially be used to sway activity in a market or industry in which the fat cat has a sizable stake. The use of such influence might raise questions of ethics and legality, depending on the actions a fat cat takes. For example, if a fat cat were to use his or her sway to compel suppliers not to do business with a rival in order to force them out of business, such actions could draw the attention of regulators.

Examples of Fat Cats

A real-life example of a fat cat would be former Disney (DIS) 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 by an average of 3.1% each year.

In 2017, Hock Tan at Broadcom Inc. (AVGO) made $103.2 million, a year the stock was up more than 40%.

Also in 2017, W. Nicholas Howley at TransDigm Group Inc. (TDG) made $61 million, a year when the stock edged out a little more than 8% gain.

Elon Musk is another notable example of a fat cat, ranking as the highest-paid tech CEO, raking in an astounding $595.3 million in pay for 2020, despite Tesla's nearly $1 billion loss for fiscal year 2019.