What Constitutes a Bonus?
Andrew Cuomo, the New York state Attorney General, says he's persuaded a number of A.I.G. executives to return bonuses that were paid to them out of funds the government used to bail out the insurance giant. I asked one of my friends who works at a consulting firm in New York to explain to me why A.I.G. went ahead and paid out the bonuses, and why the people who received them felt justified in accepting them. Basically what he explained is that the compensation system is such that employees' contracts include a base salary and bonuses that are an expected part of what they make each year. In other words, bonuses aren't really bonuses. They aren't really paid out according to performance--it seems like you have to seriously screw up not to get your "bonus."
This is the same problem with the so-called retention bonuses paid to some high-ranking federal employees a couple of years ago. It wasn't ever clear that those employees had offers to leave, or if they had offers, intended to take them. The retention bonuses weren't really aimed at retention, just as the Wall Street bonus system isn't actually based on extraordinary performance.
The solution--for Wall Street, and for the federal government--isn't really to claw back bonuses. It's to determine what compensation schemes actually provide incentives for extraordinary service, and what levels of service ought to be rewarded by extraordinary compensation. The A.I.G. fiasco ought to, and is, provoking conversations about what kind of executive compensation is appropriate in the private sector. But it ought to be sparking conversations about what kinds of compensation are effective in the federal government as well.
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I expected an issue such as this to come up. While a good idea in principle, one has to weigh in on the realities of each individual's situation. There are three R bonuses currently available -- Recruitment, Relocation and Retention. However, the circumstances of each couldn't be more different! Relocation bonuses if successfully negotiated for, are not "rewarding" anyone -- instead, they are compensating those of us who take positions in another geographical area. Increasingly, they are the only outlet available in the face of statements like "We are unable to pay relocation expenses." Managers wish to be able to hire the best qualified people and the best qualified people don't want to be completely broke for the next few years when they arrive at their new destination. Now that AIG and Merrill Lynch have seen fit to denigrate the very term "bonus" in the public mindset, what chance do we have???
kw Posted Tuesday, March 24, 2009 6:24 PM"seriously screw up not to get your 'bonus'"--I would say that's what the people that drove AIG into the toilet have done, so why should they get a "bonus", no matter what it's for? Same for the Postmaster General--his compensation & "bonus" last year was TWICE what the president makes! And the post office is losing billions also!
Sherri Posted Wednesday, March 25, 2009 8:04 AMQuote; "They aren't really paid out according to performance--it seems like you have to seriously screw up not to get your "bonus."
Well somebody has seriously screwed up enough that the tax paying public has to fork over billions to keep their failure afloat. What angers John Q. Public is last summer we struggled to put gas in our car to get to work and this summer we hope to still have a job. All the while the people who make millions to run corparations into the ground continue to get their "bonuses" out of our and our childrens pockets. Something stinks about the way we do business don't you think?
Craig Posted Wednesday, March 25, 2009 8:10 AMGeorge Orwell, writer of "1984" and other great works, penned an essay about the growing inexactitude of the English language. In it he bemoaned the lost of specificity and the ever increasing uncertainty in the written as well as spoken language. I believe he coined the term "double speak", which has been mastered by most, if not all, politicians and public figures. The issue of "bonuses" is just one of these examples. If they are not bonuses but part of a regular compensation package, why, then, does AIG call them bonuses. Do they not hire English graduates whose language skills could determine a better word to use? Pathetic is the word for their linguistic skills. Maybe they should return their college degrees!
Richard, Tulsa Ok Posted Wednesday, March 25, 2009 8:30 AMAccording to Webster's a bonus is "something in addition to what is expected or strictly due." If a payment is in a contract and is therefore expected, it is not a "bonus." By using the wrong feel-good term, AIG and the other corporations have left themselves open for the criticism they're getting.
Ted Bean Posted Wednesday, March 25, 2009 9:50 AMWhat about the 11 or so executives who left AIG and were awarded the same "bonuses". Did they resign..were asked to leave..or were fired ???
We as a country need to take a long, hard look at how many business operate and compensate their so call "executives". It's obvious that a hands-off appproach to monitoring and regulating business, as well as the massive influence that the business community has with Congress and elected officials is a primary reason for the current crisis. I hear the argument about socialism taking over, with bank bailouts, government intervention, etc.
But what we see now isn't the capitalism as we understood it. It is un-restricted, all out greed by those same entities that has provided millions in campaign contributions to those same politicians that's moening and groaning about the current plan to help those same businesses.
Darrell Dupuy Posted Wednesday, March 25, 2009 11:08 AMThis populist outrage over the small petty bonuses reflects the underlying problem with the American public. On one hand, they buy into the Republican/Reagan mantra that government is bad and if you just get rid of government interference everything will work itself out like an "Invisible Hand" guiding the outcome. Now comes a crisis (be it natural disaster or the self-inflicted economic problems) and people demand the Great Satan government fix it and right now for them. Everyone else can solve their own problems. So when AIG employees get a "bonus," the Whiner class gets all uppity and demands either they get a bonus (unspoken) or these other people return theirs. Pathetic. Disgusting. Narcissistic.
Curt Posted Thursday, March 26, 2009 3:15 PM