Thursday, March 19, 2009

The outrage over bonuses

I think the outrage over bonuses is ridiculous. I was watching the senate hearings and it came to light that there are multiple types of bonuses: retention and performance. Apparently, no performance bonuses were paid which makes sense. The bonuses everyone is upset over are the retention bonuses. The purpose of these "bonuses" was to keep people familiar with entangled financial products around so that they could unwind them and close them out. It seems that there are few people knowledgeable enough to deal with these things. So the company did something that made sense. They kept valuable assets.

The problem that everyone is having is one with semantics. These are really not bonuses. Bonus implies something extra and undeserved but who determines that? In the case of performance we naturally assume that as the driving factor in the bonus. The purpose of a retention bonus is to keep people that the company needs. This is analogous to paying a signing bonus for a new employee. The signing bonus is used to incentivize someone to join the company or a sports team. The subsequent performance is ancillary. The company has an obligation to get the people they need at the lowest cost. If they could have gotten those people from outside and fired everyone who worked there, then they should have done that. They chose to do what they felt was the lowest cost alternative. This is rational and good for the owners of the company, i.e. investors and government.

The outrage over this would be laughable if it were not true. Another lesson to learn is that "rights" are always dependent on the public mood. Notice how the idea of taxing the people who received the compensation (I refuse to continue to call it a "bonus") has support and no one is hollering how this violates anyone's rights.


Anonymous said...

Adam, I agree with you concerning the anger over the bonuses. I also think the protests and all were a coverup for other things being done. Like Bernanke deciding to print another trillion dollars. Also, I heard on Glenn Beck the protesters in CT were bussed there by ACORN and were poor people paid to protest and raise a big stink. Now, isn't ACORN in line to receive a few billion from this porkulus bill? I truly think Obama wants this country to tank and people to rise up in anger so he can have a reason to declare Martial Law. I wonder, if he did that, would the military support him, or would they defend the constitution and the American people against him.
Linda from MO

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