Heck of a Job! Here's a Bonus!

A bonus normally implies a job well done, and in the case of the AIG (NYSE: AIG  ) controversy, you've got to wonder how "job well done" was defined. "You did a good job of destroying a company, injuring our economy, and repeatedly fleecing taxpayers" -- if that's the definition, I suppose it fits.

I'm starting to think our society has some pretty loose definitions of what a job well done really is. Cue up FEMA's Hurricane Katrina failure, and former President George W. Bush's quotable remark, "Brownie, you're doing a heck of a job." I find that rather symbolic of our problems. I have to wonder if our entire society has simply gotten too lazy about judging true merit and not wanting to hurt anybody's darn feelings. Heck of a job?

And if that's the case -- that we don't reward for a good job, but rather for any kind of job at all -- then our entire system is going to continue in a downward spiral. For starters, we must stop paying handsomely for failure.

Every man for himself
I am no fan of government intervention, and the rule of law argument with AIG does concern me; it's true that it's not a good precedent for our government to run around breaking or changing laws, even if we're all rightly outraged. My Foolish colleague Nick Kapur made the excellent point last week that public shame is probably best, reminding these folks that taking bonuses at taxpayer expense is, in fact, morally reprehensible. (It still sticks in my craw, though, that had the government not intervened, there would have been no bonuses because it would have been bankrupt.)

Although Senator Chuck Grassley's quote about resignation or "suicide" for AIG executives outraged many people, I get the gist of such a rhetorical statement, which brings to mind the old ideal of falling on one's sword when one is guilty of epic fail. What has happened to any sense of honor or shame in the face of failure, not to mention the whole idea of personal responsibility? These all seem like rare commodities these days.

Today's "captains of industry" aren't like the noble captains of yore who would gladly go down with their ships. In fact, these captains of industry seem to have absolutely no problem jumping on the only lifeboat and smiling and waving goodbye to their hapless crews standing helpless on the decks of the doomed vessels. So long, suckers!

Every man for himself, indeed.

Pay and parachutes
I'm disturbed by the idea that government is increasingly getting involved in pay strategy for businesses (although in the case of companies or anybody else who accepts taxpayer money, it's government's prerogative to call the shots, which of course underlines why many of us recognize why accepting government funds is a slippery slope). Call me crazy (go ahead, I'm used to it), but government isn't exactly known for its own efficiency and fiscal common sense either.  

I think we as shareholders need to do more, and we haven't been doing it for years; we need more shareholder awareness and activism on things like "say on pay" initiatives -- we must voice our outrage about lucrative compensation for jobs not well done, or against golden parachutes where failed executives jump the sinking ship with their pockets lined richly. We should either agitate for changes in companies where this comes to pass, or make that a darn good reason we won't invest in those companies at all.

I mean, come on, Citigroup's (NYSE: C  ) Chuck Prince left that disaster with a huge golden parachute, as did Merrill Lynch's Stan O'Neal; O'Neal's successor, John Thain, also tried to leave the company with a bonus as it was getting passed off to Bank of America (NYSE: BAC  ) , before blowback got in the way. Golden parachutes are the height of absurdity, in my opinion, because they generally seem to sum up the outrageous habit of "paying for failure."

Shareholders need to start doing more more than just sitting back and passively implying that what had become status quo was acceptable. Companies need to start feeling the heat for pay practices that do nothing but destroy shareholder value and enrich managers for a job horribly done.

Celebrate the achievers, not the thieves
I understand the argument that there is a risk involved running some companies. But at the same time, I believe there are many courageous, smart individuals who understand that beyond monetary compensation, there is compensation in the form of pride in a job well done or the challenge of running a successful business, not to mention rescuing an ailing one from disaster.

Some of us know life is risk, nobody's automatically entitled to anything, and there can be sheer joy in taking on risk for reasons other than monetary gain. Call me crazy (yeah, that's twice now), but true achievement is a bigger and better rush than riches one doesn't really deserve.

And of course, if somebody's so money-oriented that the only reason they'd do a job is for outrageous pay, then maybe we get what we deserve when such "leaders" raid the coffers.

Here are some examples of achievement-oriented CEOs: Berkshire Hathaway's (NYSE: BRK-A  ) Warren Buffett and Costco's (Nasdaq: COST  ) Jim Sinegal are good examples of CEOs who have historically taken extremely modest base salaries. Apple's (Nasdaq: AAPL  ) Steve Jobs and the Google (Nasdaq: GOOG  ) guys take just $1 in salary.

Perhaps these guys understand the true competitive entrepreneurial spirit that makes capitalism great, and that true achievement is the real payoff.

These are ugly days, but one thing they give us is an opportunity to think about how to make things better in the future. Is rewarding failure acceptable? No, it's not, and it does not build stronger companies or a stronger society, for that matter. Shareholders need to act like real owners again, and stop letting companies' managements get away with this race to the bottom, completely divorced from performance and merit.

Stock news, financial commentary, and your daily dose of Foolishness: Get plugged in to The Motley Fool on Twitter!

Berkshire Hathaway Inc. and Costco Wholesale are Motley Fool Inside Value picks. Google is a Motley Fool Rule Breakers pick. Apple, Berkshire Hathaway, and Costco Wholesale, are Motley Fool Stock Advisor recommendations. The Fool owns shares of Berkshire Hathaway. Try any of our Foolish newsletters today, free for 30 days.  

Alyce Lomax owns no shares of any of the companies mentioned. The Fool has a disclosure policy and it's not crazy at all.


Read/Post Comments (12) | Recommend This Article (32)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On March 23, 2009, at 3:06 PM, mrwizard555 wrote:

    i typically vote any of my shares to withold for board candidates at any company that has parachutes or ridiculous bonuses in place.

    the boards need to set goals for CEO's that payoff the shareholders first, before anybody gets a bonus. for instance: share price gain beats sector average YOY AND zero. then we can talk bonus. even then, the bonus should be in restricted stock, not options, and subject to partial or complete clawback.

    executives need to be firmly in bed with shareholder fortunes.

  • Report this Comment On March 23, 2009, at 3:47 PM, lution wrote:

    I wish more of these guys were like Lea Iaccoca when he was trying to turn Crysler around. More of them should be run out on the rails with their bogus snake oil.

  • Report this Comment On March 23, 2009, at 4:25 PM, FinancialFellow wrote:

    I don't know what bothers me more: the bonuses that AIG is paying out to their executives or the people protesting outside AIG executive's homes.

    I'm thinking the latter. I read a quote from one of the protestors that said, "I want the government to give me something." Seriously? I hope we aren't creating a society of people that expect/demand a handout from Uncle Sam. I'm concerned that the recession has created more of these people. On the bright side at least they are demanding a handout instead of turning to crime. I wouldn't be surprised if we continue to see a rise in identity theft as a result of the recession and individual jealousy at others prosperity: http://financialfellow.com/2009/01/22/is-lifelock-worth-the-...

  • Report this Comment On March 23, 2009, at 4:58 PM, armslink wrote:

    What I am outraged by is that its not the taxpayer getting hosed on excessive bonuses from failed corporations in America, its the shareholders. There has to be new rules established by the boards of corporate america that will re-establish the shareholder as the most important stakeholder in the company, not the workers, not the ceo's, nor the board. Its the shareholders. Throughout the past decade or so, its all about screwing the shareholder and give all the money to the executives. It didn't use to work that way. I say to hell with the workers and the executives. Give them a fair day's pay for a full day's work. No more parachutes of any kind. I say stop the nonseniscal fleecing of the golden goose, i.e., the shareholders from whence all capital flows. All you hear about now are the execs making off with hundreds of millions of dollars and the poor shareholder gets his teeth kicked in for holding the stock as an investment expecting a dependable return.

  • Report this Comment On March 23, 2009, at 10:52 PM, logarithmic wrote:

    In recent years, many company's share count has been majority held by hedge funds and high turnover mutual funds. Those entities are seeking short term gain. Those of us who consider ourselves long term investors have been outnumbered. It's not surprising there's been no accountability on executive pay - if management can take risks and goose the share price, that's all the short term holders care about.

  • Report this Comment On March 23, 2009, at 11:30 PM, royalscam100 wrote:

    Alice,

    I appreciate your commentary here, but I have to admit that your column sounds a little hypocritical and cynical itself.

    You seem to chastise those executives who don't have the requisite moral shame to return their bonuses (as if any of them would have stepped up and given the money back were it not for the arm-twisting of the gov't from public outrage), but then you criticize the gov't for arm-twisting and doing what it is supposed to do, which is to step in and clean up the enormous screw-ups of our most esteemed capitalists.

    What would you have us do, Alice? Should we take an enormous risk by rolling the dice and letting AIG fail, thereby completely grinding the credit markets to a halt, perhaps grinding a great chunk of our economy to a halt and letting many, many more people go jobless and homeless for months without means to live?

    Guess what? The government will have to step in either way because EVEN if that would result in a more Darwinist answer that would get us to a stronger economy more quickly, the people would revolt before that would happen. Think about it. Would you stand around watching your family starve while companies closed left and right in your own neighborhood?

    I mean, there's no good answer. And WHY is there no good answer? I'll get to that. But first, please be careful about your criticism of what the current administration is trying to do. Yes, there are uneasy connections with the very people who are tightly involved with the crisis. Yes, the plans and management hasn't been perfect. But Obama is smart, and he learns from his mistakes quickly, and for chrissake, give him a chance, will ya?

    Next, you say:

    "I think we as shareholders need to do more, and we haven't been doing it for years; we need more shareholder awareness and activism on things like "say on pay" initiatives -- we must voice our outrage about lucrative compensation for jobs not well done, or against golden parachutes where failed executives jump the sinking ship with their pockets lined richly. We should either agitate for changes in companies where this comes to pass, or make that a darn good reason we won't invest in those companies at all."

    ONE good reason for more gov't involvement, which has been rapidly declining thanks to financio-political manipulations, is a higher and more intense level of oversight, from everything from simple bank loans to the ludicrous financial "instrument's" employed by hedge funds and the like.

    This is why there's no good answer:

    Do YOU have time to watch over the inner board workings of every single stock you own? If you do, I can guarantee you are in a very tiny minority, because unless you are rich enough to have a stake that provides leverage, you have many other pressing things in your life and it would be nice to know that your tax dollars are working to protect you in some regard.

    In fact, if gov't had BEEN more vigilant, and BEEN more involved in oversight, including an SEC that wasn't staffed by the very people who worked on Wall St. over the past 20 years or more, we might never have arrived at this crisis.

    Please think about the positive things gov't can do and does for you well every day as a front against the worst impulses of capitalism.

    My $.02

    Brad

  • Report this Comment On March 24, 2009, at 7:39 AM, downisland wrote:

    The World was "awash in liquidity" that situation created so many out of balance things. Executive Pay is one of them.

  • Report this Comment On March 24, 2009, at 12:29 PM, RaulChapin wrote:

    Hi Brad:

    More government oversight. Did you hear of what a great success the USSR was? Sure China is growing even (or because?) with huge government oversight, but if you had to make a bet, would you rather be the average American or the average Chinesse?

    Alice is right, shareholders have to be more vigilant. IF you do not have the time to watch where your investment is going, then you should not invest. When a company is doing well, the owners (shareholders in the case at hand) can afford to do other things, take trips and basically let the management run the company. But NEVER checking on what is going on is not a recipy for success, eventually no oversight from the owners means the ones in charge (be it the Goverment, the CEO or the Union) will be tempted to start taking more for themselves.. and more and more, till the careless owner is left with nothing.

    To make a comparison with the above. If you owned a restaurant, and decided to just disappear for 5 years and never visited it,nor audited the books,nor audited the service, and never tried the food and you came back to find that the place was in ruins, the manager had been cooking the books and giving you false reports. Would it be your fault, or that of the government for not overseeing that the manager did not: feed his friends for free, pay himself more than he should (how much should he be paid...a government declared restaurant manager salary??!!), failed to improve his management skills by going to school etc etc etc.

    If you can construct a way in which Uncle Sam is responsible for your lack of oversight... then i guess i will try to use that and go buy some good business i have no idea about and demand Uncle Sam give me a handsome profit every month.

    HOWEVER: The manager is still responsible to you, in the civil realm of TORT and perhaps even in the realm of Criminal law. And that is how the CEOs should be treated, sued by their companies (there is a legal figure in which a shareholder can sue in the name of the company it owes as little as one share of) and prosecuted if any criminal law was indeed broken.

    But for Obama to take over every failed restaurant because America can not go on without food... would be somewhat ridiculous...

    My 2 Devalued cents (with the TARP and all)

  • Report this Comment On March 24, 2009, at 12:50 PM, pondee619 wrote:

    "A bonus normally implies..."

    But in the AIG case we do not have to rely on implications. What were the executives/emplayees at AIG earning in salary before the "bonuses" were paid?

    In short, were the "bonuses" bonuses or their paychecks?

  • Report this Comment On March 24, 2009, at 1:28 PM, royalscam100 wrote:

    Raul Chapin,

    Your answer seems typical of the utopian capitalist mindset, that is to say that we don't need any gov't oversight at all and if we do employ the gov't more thoroughly, we'll become Russia overnight...come on. We've always had gov't oversight of our economy. It's just a question of degree. There's simply no evidence to support your claim.

    Clearly, since our "best and brightest" were not really that, we now, like an angry and scorned parent, must tar the living hell out of these "precocious children" because they misbehaved so as to threaten our way of life.

    Your analogy of the restaurant is ill-conceived. If I owned a restaurant, I would own it 100% and of course would be there every day to make sure it runs properly and profitably. Very very few people own a majority stake in the stocks they have. And even if your "restaurant" owner decides to buy up another few restaurants and expand, there is no way for him to be at all of them at the same time, watching over everything.

    And by the way, are you going to tell every fund manager in this country, people who DO THIS FOR A LIVING, including Buffett, that they should have been more vigilant and watching over their "restaurants" or they wouldn't have lost so much money?

    Sorry bro, but yours is a terrible and unsupported argument.

    ~B

  • Report this Comment On March 24, 2009, at 1:43 PM, mheusser wrote:

    1) Alyce snuck in "Epic Fail" in a business-ish forum. Sweet.

    2) I do think the comments about modest salaries for Apple and Google may be over-statements; take a look at Apple's annual report and the benefits that were given to Jobs, such as (arguably) back-dated options and the corporate jet. (I own apple stock)

    What's /good/ about Apple is that the shareholders seem to be up on things enough to know when $1 a year isn't, and complain about it, and get it listed in the Annual report. And, overall, I don't think Job's total compensation is unrealistic.

    If you want what I think is a good example, look at tootsie roll, but look carefully, at, say, the benefits of corporate travel and the condominums made available for the senior executives when visiting remote work sites.

  • Report this Comment On March 24, 2009, at 1:59 PM, Swede46 wrote:

    As much as I find the AIG bonuses distastefull, a case can be made for some of them. From what I have read, wall street compensation has evolved over the last 10 or 20 years to be short on salary and long on "retention bonuses" to reward talented employees and give them defered compensation as an insentive not to jump ship. To my understanding, the top level managers that steered AIG into this mess are no longer with the company. The mid level managers with the knowledge to unwind these complex financial instruments with the maximum return to AIG are a scarce commodity and in demand. If the majority of them leave, it will take much longer and cost more to close these positions. D@mned if you do and d@mned if you don't. A classic no win situation.

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