Philosophy over coffee

My two-cent on the billion-dollar compensation debacle

In Headlines on February 5, 2009 at 8:56 am

I don’t have a problem with big bonuses. Excessive as the bankers’ bonuses may be, a management that runs a rather profitable business has the right to have its share of financial reward. The way businesses run is this: labor is compensated on a generally fixed rate and any outstanding result is typically greeted by bonuses.  These bonuses are apparently contingent on how profitable the firm has been for a period.  The clamour for a cut on the compensation of bank executives who dared take excessive risk on derivatives, only for those actions to backfire and drag their firms, the global economy, and the populace down a deep abyss is completely understandable.  When they see executives spend million of dollars renovating their offices, which are probably more than conducive for work to begin with,  while they get laid off and lose their source of income just triggers an emotional outburst.  It eludes me how these people can still choose to spend for corporate jets and trips to Vegas when they very well know that they are in close public scrutiny. Many are furious because of the idea that these firms “asked” for taxpayer money, only to spend so lavishly on things that not a single bit resolve the financial problem. Whether it is taxpayer money or their own money they spend, who in their right state of mind would throw out money, huge sums of money, while the rest of the world tries to grapple with the fact that people’s money are being spent to save their bottoms as well as the unemployment figure that grows by the day? That is just shameless.

Today, Obama laid out his plan of setting a salary cap of $500,000 for the top five executives of those institutions who took taxpayer money.  I wouldn’t say that he wasn’t provoked by the circumstances.  Having said that, I believe this is simply a sideshow and if there’s anything good that would come out of this, it is that more would be able to sleep just a little more soundly, thinking the executives have been served.  Perhaps more capital saved when accumulated over the years? But, I don’t see how much of a solution this is, if not simply yet another government regulation added to more that are already on their way.  Compensation is at best a minor issue.  The salary cap may be rightly imposed at times like this – perhaps even a no-salary rule wouldn’t even be so bad. These people have taken so much in the past years that getting rid of their compensation for the duration of the recession would still allow them to live waaay comfortable lives. But a permanent compensation cap I don’t think is necessary, if at all appropriate. What needs to be fixed is the system.  One idea, which is not even new and extreme, is to base their bonuses on their firm’s performance.  For their firms to write-down huge amounts of losses and for them to still request for bonuses, until it raised the eyebrows of politicians and the citizens alike, is indeed an insane and insensitive move.  But as we saw, the effects of one’s decisions are not right away reflected on the same period the decision was made. The result of the decision to accumulate billions of dollars of credit default swaps (by Lehmann Brothers) did not come to roost until just last year. A more advanced suggestion then becomes – give out bonuses a year or two after the current year.  That way, significant decisions that have been made would be given time to take effect. Furthermore, a $500,000 salary cap may just prove to be counterproductive.

And that stimulus plan? Tax cut, government spending, and tax cut. And a modification of the mortgage rate. This is a plan to stimulate the economy, not to make transfer payments.  Where I stand on the political spectrum might have been given away by my opinion on this matter but the other party’s plan just doesn’t convince me. If implemented, they will just prove to be waste of money.


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