Did you say bonus?

By: ispeculatornew
Date posted: 12.24.2008 (4:00 am) | Write a Comment  (0 Comments)

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Wow, talk about different times. Only a few months ago, employees in the financial world and elsewhere were mostly planning what would happen to their 2008 bonus. When they were created, bonus and other incentives were created in order to benefit shareholders. How? Simply by creating extra motivation for employees to generate more profit which would in the end get extra return for the shareholders.

But somewhere along the way, things got lost, especially in such sectors as financials. In some ways, it became less about the performance and more about simply doing the job. And it also became more of an added salary than about anything related to performance. At some point, a bonus became something related to the number of years of experience and something that employees expected and even included in their budget.

That drew things way further than anyone could have imagined giving managers no reason to use caution in their decisions and no reason really to look into the interests of the shareholders. The problem was that it became such an exageration that the system eventually collapsed with banks and other firms taking on too much risk to be able to sustain any downturn of their assets. Say what you want about the actual crisis, about how it is unique and was unpredictable. But you would the best firms in the business to be able to sustain such a crisis, no matter how unique it was. Were the bonuses the cause of it all? No, they certainly were not. But looking into them gives you a good idea of the unique culture that existed on Wall Street and in many other sectors.

A bonus should be given according to performance of course. But it should also be given with the interest of shareholders in mind. Credit Suisse had a creative way of getting it done as it has decided to pay the bonus this year by giving out portions of the illiquid assets to its employees, using about $5 billions to do so. In order to profit from them, employees will have to remain there for a long time and this will also help Credit Suisse in its task of deleveraging. Seems like a win-win right? I think it’s creative and certainly an interesting way to get it done.

Other companies such as Google are getting smashed for lowering their bonus. Sure, employees went from getting about 1000$ on average (although other reports say some employees received up to 20-30K) to getting a mobile phone this year. But with the stock going down so much, isn’t it normal that shareholders AND employees share the downfall? I just think a bonus should be a reward for performance, of the employee and of the company, not something to take for granted as was too often the case in recent years…

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