Bail-Outs & Bonus Pay

There has been a butt-load of chatter going on the past few days about the big bonuses being paid to top executives of the companies that received bail out funds from the Federal Government. Namely AIG, the insurance & finance giant, but other companies as well.

And I understand the uproar. These companies were in trouble, supposedly about to crash, and the government (we tax payers and our children and grandchildren) bailed them out. And now MILLIONS are going to the very corporate executives who watched it all happen & did nothing to stop it?!?!?!?

So now the government wants to do something about it. One idea is to get the bail-out funds back. Ok, that’s fair. If the company is doing so well that they can afford to blow money like this, then they don’t need it. If the government gets the funds back, then that’s less debt on the backs of tax payers of this and the next two generations.

But what our elected & esteemed members of Congress are really focusing on is capping the incomes of executives with those companies who received bailout funds at $500,000.

BAD idea!!! Let me count the ways.

It ain’t nobody’s business!

That’s a matter between each Corporate Executive, their bosses, and the owners and/or shareholders of the company.

First of all, these executives aren’t regular employees like most people are. They don’t go in to the HR department begging for a job, fill out an employment application hoping there’s a position available that meets their skill set, and wait by the phone for a call. Then go into an interview and lie about how great they are and why they should be hired, when their only motivation is to “get a job, any job, as long as there’s some money coming in to pay the rent and utlities.”

contractThese are persons with highly specialized skills, which they spell out on a resume. Most likely, they didn’t go begging for a job. The employer chased them! In exchange for the company’s use of those specialized skills, there is a contract between this executive and the company, which specifies the means by which they’ll be paid. Included in that contract is a salary AND certain bonuses that are payable annually (at least).

Since contractual law is binding, under the terms of the contract, that company is obligated to pay those bonuses. Are we going to start allowing companies to break contracts because WE don’t agree with it? If we’re going to start doing that, then contracts will loose their power to bind by law.

The Constitution is our Federal Government’s contract with its Citizens. It specifically mentions contracts, that’s how important they are. Thus, IF the government forces the companies to break those contracts, either the US Constitution is invalidated, or those we’ve elected who support this measure are immediately subject to impeachment because they’ve violated their oath to uphold & protect it.

That said, here’s where those companies are stupid, in my opinion…

Bonuses should ALWAYS be performance based.

Those bonuses should have been based on a percentage of company profits. If I were the owner of that company (or a member of the board of directors of a public company), there’s no way I would bind myself via contract to pay someone a bonus that might be undeserved. If the company is failing, those who are running it are failing. After all, if the company isn’t making any profit, where is that bonus money coming from? And if the company isn’t making profits, and the bonuses are paid, then those funds decrease the revenues available to pay the owner/shareholders. Or, as in this case, the company goes in debt to pay those contractually bound bonuses. Now that’s stupid!

Before going into my next point, let’s talk a little basic economics. You might recall an earlier post I wrote regarding economics & the Presidential Election. Remember one of the basic premesis of a free-market system is supply & demand – which is highly influenced by…

Reward & Punishment.

The free-market will determine which product, services or skills are in demand, as well as how much they are worth. They are worth what the market is willing to pay. I may be a decent singer, but the market is definitely not willing to pay to hear me! So if certain people have certain skills that are in demand to fulfill certain needs within a company, it is that company and the free market system that will determine how much those skills are worth.

And the government is the worse entity to put a cap on ANYTHING. Remember those $200 hammers & $500 toilet seats? The government is also the ones who set the $10,000 life insurance coverage for disabled vets. That was set back in WWII, and is still in effect today! Granted that was a lot of money back then – could buy you a really nice house. But today, that’s barely a down payment on a small home! Are we going to leave this up to the Feds?!?!?!?

On the other hand, if the free-market is working as it normally does, and one of the corporate executives from AIG, or other bailed out or failed companies goes looking for his next job, do you think they’re gonna be able to get such a cushy salary and multi-million dollar bonuses? Absolutely not! They’ve just proved their level of incompetence!

Life isn’t always fair.

So, although there are obviously many people in our country today who believe it’s unfair that corporate executives get paid so much, maybe they should really take a deep look in the mirror. There are always going to be some people who make more than the average person. And there’s always going to be a large pool from which to hire a McDonald’s cashier. What are you doing to improve your worth in the marketplace such that you are worthy for higher pay?

Ok, that question has the potential to take us on a real tangent! Enough books have been written on the subject without my adding to the subject.

The point is, sometimes life is unfair. The climate runs in cycles. The economy runs in cycles. And the problem is only as bad as we perceive it to be. The government needs to get its nose out of the free market. Let it correct itself. And it needs to stop trying to hinder free enterprise! Let companies make their own decisions and pay the consequences of them. Good or bad.

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