AIG bonus fiasco
By Tom Polischuk | Posted on March 19, 2009
I just wanted to put my two cents in on AIG bonus-gate. It’s a sad state of affairs that our Congressmen are wasting their valuable time putting forth legislation to tax the AIG executives. (Although I think the large majority of Congressmen see time spent posturing for political purposes as time well spent.) They should have done their due-diligence long ago to head off this current sideshow. As undeserved as those bonuses are, our country is facing a multitude of challenges that make this issue pale by comparison.
On the other hand, these AIG bonuses bring to (glaring) light what I believe is a serious problem with how executive bonuses are structured. Throughout the history of corporate America, there are probably enumerable examples of executives getting lofty bonus packages when their performances were, at best, mediocre. This should not be the case.
Top company executives should receive bonus compensation, and it should be quite handsome when a company’s performance warrants it. A further challenge would be to tie these handsome bonuses, somehow, into longer term business performance, not the quarterly quick turnaround that Wall Street seems to crave.
What needs much more transparency (transparency seems to be the Number 1 buzzword of late) is how the executive compensation committees structure the executive contracts that companies are bound by law to honor. It just seems, as a rule, the people that come up with these executive compensation packages are only taking care of the executives and not the shareholders. I hope it’s not like a good-old-boys club, but stranger things have happened.
AIG executives were, absolutely, the last company executives that should have gotten a bonus—CLEARLY. What we need is a Harvard Business Review (or Wharton School since I’m a Philly boy) case study in how those contracts were developed in the first place.
To do:
- Compensate top executives with a top base salary commensurate with their responsibility (and they do have lots of responsibility).
- Structure bonuses only on significant longer term top business performance.
- Make the executive compensation package more transparent and understandable to laymen, because there’s lots of laymen that are shareholders.
