Has Everyone Forgotten the Meaning of a Bonus?
Compensation for employees consists of two components, a base wage or salary and a bonus. The base salary is what everyone is paid for showing up and doing the work. The concept of a bonus was introduced to reward excellent behavior and excellent results. A bonus can be paid for things like beating projections, exceeding budgeted profit, improving the companies performance and things like that.
The core concept of a “bonus” is that it is something extra. It is in addition to the base compensation and has to be earned. But American business has largely abandoned this practice, and now the bonus for high paid executives is for many firms just another part of compensation. It is paid regardless of performance.
This evolution in compensation means that when a firm that has done very poorly and is in dire straits decides NOT to pay a bonus, that makes news. MBIA is a bond insurance company, and for the past several years it has had horrible financial results and a near death experience. But miracles abound and this year it has decided not to give is senior executives huge bonuses.
Company officials decided that the executives would take no more than their base salaries for 2011, despite getting bonuses before and during the financial crisis. In a securities filing Monday, MBIA said it had "concluded it was in the best interest of the Company not to take cash bonuses or long-term incentive awards," a decision it made "following discussions with" the New York State Department of Financial Services.
Lest anyone think this is the result of a rational thought process, let’s clear the air. This is a result of regulators saying that a company that is dependent directly or indirectly on government aid should not be paying bonuses, and MBIA is adopting its policy reluctantly.
Benjamin M. Lawsky, New York's superintendent of financial services, told MBIA late last year that the executives would be ill-advised to take any cash or stock bonuses, arguing that the money would be better used elsewhere. Mr. Lawsky noted that intervention by his agency has helped keep the firm alive, these people said.
MBIA officials were angered by Mr. Lawsky's move and initially challenged him, but then relented, according to people familiar with the matter. The company is engaged in a thicket of negotiations with Mr. Lawsky's agency, which regulates MBIA because the bond insurer does business in
. New York
"Whether it's a TARP bailout or other government intervention that's keeping a company on life-support, outsize bonuses for executives are not acceptable," Mr. Lawsky said.
Gee, the company officials were angry! How dare they not get bonuses for running a good company into the ground. Besides in 2010 they paid the CEO a big bonus, and that was a terrible year for MBIA.
MBIA said in its filing that it didn't calculate what it would have paid executives in bonuses for 2011. In 2010, MBIA Chief Executive Joseph W. Brown received a cash bonus of $1.8 million, on top of a $500,000 base salary.
Other executives received compensation packages in 2010 of about $2 million or more, according to company filings.
But some credit must go to Mr. Brown for his actions in 2009.
In 2009, Mr. Brown declined to accept a $1.5 million cash bonus because the company laid off many employees that year, said a person familiar with his thinking.
Mitt Romney in his speech after winning the
Illinois primary talked about how great it was in that people could be rewarded when they invested in businesses and worked hard and were successful. No one really disputes that. What Mr. Romney and his ilk do not understand or want to accept is that in America those huge financial rewards go to top executives even when the companies they manage have terrible performance. America
One wonders if Mr. Romney will ever “get it”, since in his case he made millions off of companies that ultimately failed, and apparently sees it as his perfect right to do so.