Lack of intelligence in recent bonus package payouts

At the risk of jumping on an already overcrowded band wagon, I’m not too sure about the logic these days behind the AIG and Nortel performance and retention bonuses. Yes, it does look bad when a company lays off hundreds and thousands of its employees, and then gives a handful of executives millions of dollars in bonuses. That’s just poor planning and terrible PR.

But digging deeper than that, performance bonuses are meant to reward an individual’s valiant effort from the preceding year. But, a smart bonus plan will have a company modifier attached; meaning no matter how well the executive does, if the company as a whole performs poorly, then the executive’s bonus is cut in half, in a quarter, or whatever is appropriate. I don’t know if this was the case for AIG and Nortel, and I will most probably never know. But surely a situation like, oh I don’t know, declaring bankruptcy, would cut that bonus in 3/4s. Or, as in the case of AIG, when the stock decreases from a 52-week high of $49.50 to a low of $0.33, a 99% decline, then performance bonuses should be out of the question.

Retention bonuses on the other hand are meant to retain key talent, quite obviously. Now, who are they trying to retain, the individuals that got them in the mess in the first place? You want to keep those guys around longer? Shouldn’t they be fired? An even better question: Where are they going to go?? We are in a recession here, meaning there are not many job openings available, and these executives just blew up the entire company. AIG and Nortel are their only options! I don’t think retention is an issue.

Optics aside, the logic behind these bonuses leaves me wanting. I don’t have a problem paying executives the money they’ve earned when profits are increasing and the company is growing. But when the ship’s sinking, the executives have to go down with it.