AIG and Thoughts on Bonuses

I always thought that bonus is bonus, where bonus means something extra that is given when performance is above and beyond the norm, relative to a job scenario. Specifically, we must be careful performance is not measured on short-term and must be a balanced evaluation of both short-term and long-term benefits. And in real life, well, bonus is like icing on the cake. I still view bonus as such even now as I am working. I like them, but I do not count on one. That’s why we call it BONUS.

Past few days we keep hearing about the AIG bonus ordeal. I don’t mind them giving out bonus when they are due for performance, but obviously, we can agree that AIG’s performance and moreover, most of the financial sector and Wall Street’s performance call for no bonus. Not only what they did destroyed the value in the system (or created tremendous illusional value), they believe they deserve to take even more value away from it for personal gains.

Conscience anyone?

One article writes that AIG’s CEO Liddy said he needs to pay out “retention bonus”. Correct me if I am wrong, but I am not sure if retention is something to be worried about these days. There is also the generic claim that we need to keep financial expertsto fix up the system, but have we forgotten that these top people are the same people who dug us the abyss on the ground (and covered it up) in the first place over a period of time?

Truth be told, I would be ashamed to be paid anything if I had screwed things up so badly. I would be ashamed of all the money I was paid in the last few years. And why are the people that had led us into this mess still in their positions anyways? In the old days, if you have f***ed up so badly, you should at least have the gut to resign, if you didn’t get your butt fired in the first place. In the even older days, I think you will get your head loped off.

Accountability anyone?
Responsibility anyone?

Now the government is talking about regulations. Maybe. But that will do is for people to come up with new ways to circumvent the new regulations. The system is not right not because of the system. The system is not right because of the people.

I’m just going to ask a few questions now. I do not claim to have answers, but it is something that we all could think about.

Should it really be that the financial sector’s employees are “entitled” to bonus?
How did we come to “count on” bonuses?
How could so many claim to deserve their pay and bonus, individually, when their industry is entirely in shamble? Does not that equate to a citizen claiming he deserves food when his entire nation is starving? (at this point, I feel a little sick in my stomach)

Finally, the top people in companies are always paid in the millions…
But let’s be serious, how many millions does a person really NEED?

Originally posted 2009-03-18 22:29:11. Republished by Blog Post Promoter

4 Responses

  1. Greg Munu says:

    Well, in my company we started with bonuses some years ago.
    At the time there was a big discussion on how to make a system for bonuses so that people wouldn’t get used to them as part of the salary.
    The unions actually came up with the idea that the bonus should be a MAXIMUM of 5% of anyones salary, and that getting bonus or not should be paid out only if the company exceeded a preestablished performance goal.
    At the time (and the next two years) this was extremely annoying as the company had record earnings (and easily could have paid out 15-20% bonuses).
    Even in 2008 the earnings were modest, but 2009 will perhaps turn out slightly on the negative side.
    At this point I’m fairly happy about the outcome, as the system encouraged a decent regular salary as opposed to big bonuses. The salary increases are of course performance based, and so it encourages a steady and good performance over performances that are high but risky.
    Getting people to stay in the job is a matter of making them happy about their job.
    The point of the wage is not to make it a as high as possible but to NOT make it too low. Lower wage make you unhappy, but higher don’t make you happier than you already are.

  2. Kin says:

    Thanks for sharing how it works at your company, Greg. The bonus cap part is definitely tricky because not giving reward when it’s due can as easily anger people.

    But then I guess it depends, if the executives also follow the same rules. Should be okay. But now there is basically two sets of rules between the top few dozens executives vs. regular employees. We can start to see changes that is more or less correcting this concern.

    Your last two points hit the nail. In the end, enjoyment and happiness is much more about the job itself, so long as it’s providing sufficient salary. The key is on the word “sufficient”.

  3. Muzie says:

    I for one, do not condone the taxing that was done by the government.

    Yes, these people are most likely linked to what caused the bubble, though it’s very hard for you and I to actually know to extent. They’re probably responsible for bringing AIG down. Are they responsible for the housing bubble itself? That I don’t think so.

    What is troubling here is that those bonuses (well they’re not “bonuses” by most people’s definition, whatever word we use doesn’t matter) were part of a contractual, binding agreement, made before the government intervened.

    Contracts are part of the fabric of society. Banks loan money to homeowners contractually expecting ot be repaid. Businesses do the same. People take on insurance expecting to be repaid.

    This whole debacle is caused by breach of trust from all parties, and the government is stooping to their unethical level. It’s not like that bonus money was meaningful to the government. All this did is make some government officials look good, but at the same time they have shown they have no more honor than those they blame.

    Why is AIG bankrupt? Well, simple, because bankers & hedge funds took contractually binding obligations with AIG, such that, if houses fell much, AIG would have to pay up. It’s likely hedge funds played this to the max, and took up much, much rish and simply shoveled it up to AIG.

    Then, why not renege those insurance contracts while we’re at it? Suddenly all of AIG’s problems would go away. Well, in all practicality, many banks would fail if they wouldn’t be able to have AIG put all the problems on their back. Yes what we get is random justice instead.

    The fact these people didn’t deserve their bonuses, or that they we’re “bad people” is irrelevant to me – we have justice courts for moral issues. FOr me what matters is my government can single anyone out at any moment and make improvized laws simply for public image. That to me, is a bit scary.

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