Executive Bonuses: Be Careful in Your Criticism

So a company has lost a bazillion dollars, leading the government to pump in money to mitigate "systemic risk."  Should the executives get bonuses?

The answer is not as obvious as you might think.  Consider a bank that gave its branch managers performance targets.  One manager coached her employees well, worked long hours herself, and exceeded her targets by a wide margin.  In other parts of the bank, lending officers were making bad loans, the CFO bought bad securities, and the CEO spent millions redecorating his office.  Should this high-performing branch manager get the bonus that was promised to her?  Keep in mind, also, that as the financial crisis worsened, the importance of gathering and retaining deposits increased.  The branch manager's work became even more important than the original bonus plan anticipated.  Pay her a bonus?  Maybe so.

In some cases, the bonuses may be contractual obligations.  I have a lot of trouble with our government urging companies to break contracts.

I know bank CEOs who have stopped all bonuses, and their top-performing people probably understand.  But they also know that they have been $%^&*!'ed.  The company owes them.  From a public policy viewpoint, the companies should be allowed to pay the bonuses.  From a business strategy viewpoint, maybe conserving cash is more important that retaining staff.  The top performers will probably stay with you a little longer, but they need to be recognized today, and paid tomorrow.  Here's what I recommend that CEOs do in this situation:  Call the people who really deserve bonuses.  Recognize their achievements.  Promise that as soon as the company returns to profitability, the CEO will reevaluate the bonus situation.  Then pay delayed bonuses as soon as possible, before the CEO himself is eligible for a bonus or pay raise.

Be careful in judging the payment of bonuses.  There may be people who truly deserve them, even within a poorly-performing institution.