The bonus round

In this video President Obama lambasted corporate executives for accepting very tasty bonuses while simultaneously begging their customers (taxpayers) to shore them up so they can sell more stuff to them later.  Prior to that I read this optimistic Yahoo article claiming that corporate fat cats may soon be starved of such bonuses.

Anyone reading this blog lately knows I have been in full-bore cynical mode and nothing I have read has dimininished that one iota.  A large part of that is due to a Techpulse piece revealing how Yahoo’s current CEO is receiving an 8 million dollar “grant” in February 2009 even as the company flounders close to nonviability and employees see their pay frozen.  Sure, this is an old story we’ve seen play out countless times but the distance between CEO arrogance and employee hardship hasn’t been this great since 1929.

But the icing on this sour cake is Rudy Guiliani’s unsurprising defense of disproportionate bonuses.  He’s trying to make the case that it is those awards that will trickle down on the disadvantaged to keep an economy afloat:

“Those bonuses, if they are reversed, are going to cause unemployment in New York,” the self-described fiscal conservative said. “I remember when I was mayor, one of the ways in which you determine New York City’s budget, tax revenue is Wall Street bonuses.”

Hang on Rudy– again, those bonuses are nothing new.  They’ve been awarded left and right as the finance bubble bloomed and then even as it collapsed.  How much effect did they have on preventing the loss of hot air?

All facetiousness aside, I would be inclined to agree with Rudy, regardless of his poor showing in the last presidential primaries IF he could point to relevant  statistics instead of resorting (as I did above to illustrate a point) to tossing up raw statistics without a proper dash of context.

Rudy, you should know that correlation does not necessarily indicate causation.  And we already saw after the 1980s that so-called trickle-down economics are problematic yet you’re clinging to the discredited notion as if it still had legs.  Your premise that the big bonuses will largely be spent in local eateries and the like is disingenuous; more likely, it will be placed in some overseas investment(s) considered to be more secure than anything the United States currently has to offer.

The reality is that if that bonus were instead awarded to the myriad employees actually working to make their employers successful, odds are the money would have a greater impact on local economies.  But this idea can’t find a place at the table because it is tantamount to socialism.

Then again… aren’t the bailouts?


6 responses to “The bonus round

  1. This is an EXCELLENT rant! I am put to shame. Will be blogging about it today or tomorrow – posted it on twitter too.

  2. Thanks, but no reason for shame DB. Lately you have been my inspiration for edginess. 😉

  3. allnameswereout

    Criticism to bonuses has been going around here for a long time. Normally you don’t hear much about it but especially during recessions people tend to feel its unfair.

    For example, ABN AMRO, a Dutch bank, got into trouble because of the US crisis because of their mortgages deals over there. Due to this a fusion with Belgian bank Fortis was cancelled and the bank was _bought_ by the government (now, _that_ is socialism…).

    ABN AMRO recently outsourced their whole IT department. In the meanwhile employees of ABN AMRO are layed off. And we got into a global recession. It is ridiculous then, that after all these _bad_ results by management and after all these _cost_cutting_efforts_ to give management a high bonus. The bonuses are supposed to be based on their performance but its hard to defend such for both the public (in recession, less to spend, less wage, unemployed, and so on) as well as their workers (in recession, less to spend, colleagues got laid off) as well as the ex-employees who got laid off or merged away due to outsourcing.

    I’m not against a bonus by definition, but in every case including in high echelons, it has te be well argumented or not public. In some cases, an employee can decide to keep private whether she received a bonus. Sometimes this can be desired, to evade something such as jealousy.

  4. Yeah, we’re good here in the US at griping when things become extreme in some way and then relaxing when the pressure drops a bit… so I’m not holding my breath over true reform. I’m not against bonuses in principle, either, but I *am* against them given when they’re not warranted, and by that I mean in clear-cut cases. I also take exception to the growing disparity between bonus size and other factors such as average wage growth.

    A former CEO at a company for which I once worked was fired for not living up to one of his hiring criteria (doublig the stock price) but received a 50+ million USD bonus upon his dismissal. I blame the boards of directors for general nonsense like that, and I believe examples like that are the single largest types of contributor to CEO indifference. In fact, in many cases the CEOs are better off driving a company down and quickly being fired with a hefty severance than spending time building the company up. That sort of counterproductive craziness is what has got to stop… but what is the best mechanism?

  5. allnameswereout

    Well, I can tell you one ironic thing… the argument for these bonuses here, was that this is ‘normal’ in the corporate climate, and that putting limits on it (by law) would make the Netherlands an unattractive business climate. So, because others do it, we should allow it as well, and the government left dealing with the issue voluntarily. Some corporations used the lack (or less big) bonuses as PR. This was during the previous recession btw.

    I believe the problem we face is in core because its a public owned corporation, and that [many] shareholders are egocentric egoists who only see short term profit. There are also issues with this because by law its seen as one entity while many people work for this one entity. A comment like explains this.

    But I have to admit I still don’t know much about how this principle of publicly owned corporations actually started. VOC (Verenigde Oost-Indische Compagnie) was the Dutch response to the British East India Company which was the first multinational and first publicly owned corporation (by shares) and they had a monopoly granted by the government. It was started because there was too much internal competition while the Netherlands had to compete with their enemy, Great Britain (or England). And, I believe, it was started because of lack of funds… if you look at what they did (colonization) they were rather a shadow government while not being the government. I take it you know about the genocides and other Bad Things the VOC did. If not, read the book or watch the movie Max Havelaar. This book, from 19th century, played an important role in decolonization of Indonesia and arguably Africa.

    However, what happened with VOC was that essentially the government outsourced an important business. The government gives responsibility to a non-profit foundation or a corporation, paying them for this service. In return, the government is not directly responsible for the quality of service, and they do finger pointing. And, something like a FOIA request (called WOB here) they can deny because its not part of the government. So these constructions have their benefits depending on who’s angle you look at it.

    Anyway, to make sure this behaviour less effective one has to stimulate long-term benefits (smart egoism) over short-term benefits (stupid egoism). I’d think of a construction such as giving a CEO static shares which aren’t sellable for X years. Then, after the CEO is gone, we’ll see what he was worth…

    We should never forget a manegement works for the corporation but sometimes only for a short while. Workers work for the corporation as well. While the corporation sole goal is to remain in existence; with its primary goal revenue and profit. The construction has to be made so that in the long run those who worked on reaching these goals benefit. But.. nowadays, people are far less loyal to where they work; job hopping is considered normal. And, in contrast to corporations a government works for the people. These 2 don’t mix very well.

  6. The short-term profit pursuit of “shareholders” in the US is introducing too much unnecessary chaos into the system IMO. The resulting turmoil in their valuation makes it difficult for companies to engage in realistic longterm planning, which just further serves to exacerbate the short trade cycles. What a mess.

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