You'd think that companies all over the U.S. would have learned from the ruckus raised over insurer AIG's (NYSE: AIG ) bonuses. With the economy in tatters, is now really the time to be handing out extra pay?
With that in mind, let's turn to Wal-Mart Stores (NYSE: WMT ) . Earlier in the week, this global retailing powerhouse announced around $2 billion worth of bonuses for its hourly workers. Really, Wal-Mart? Really? There are besuited bankers all over Wall Street losing their jobs and being forced to return compensation, and you're handing out bonuses? Puh-lease.
Not so fast
Of course, I jest. Wal-Mart recently announced its results for the year ending in January, and in the midst of a brutal economy, the company managed to show growth in revenue and net income. Not only is that achievement commendable in this market, but it's also something that Target (NYSE: TGT ) and Costco (Nasdaq: COST ) -- not to mention higher-end and specialty retailers such as Best Buy (NYSE: BBY ) and Nordstrom -- have not been able to match.
Sure, it's refreshing to see a company using bonuses as they should be used -- as a reward to employees when the company has a good year. But I've already spoken out in favor of some Wall Street bonuses, and I'm really not all that outraged about AIG.
The truth behind bonuses
Amid all the furor, I think it's important to remember exactly what bonuses are, and what they're not. Bonuses are not gifts to employees, paid because businesses enjoy giving their people lots of money. A successful business isn't throwing its employees whatever spare cash it has kicking around. Any company would almost certainly prefer to hang onto the extra money.
Bonuses are a way to help motivate employees and shape their behavior. In the case of Wal-Mart, the company did increase sales and profit. But let's be honest here -- Wal-Mart doesn't have the greatest track record of dealing with its employees. Its announcement of the bonuses for hourly employees also came about a week after Congress introduced the Employee Free Choice Act, a bill that would make it easier for employees to form unions.
Sure, the bonuses are an annual thing for Wal-Mart, but why pay them at all? Well, to encourage employees to stick around, and to stem the ill will surrounding the company's treatment of its people.
Turning back to Wall Street…
It's no different on Wall Street. Goldman Sachs (NYSE: GS ) and Morgan Stanley (NYSE: MS ) don't give their people big payouts because they enjoy writing seven figures on checks. They believe that the investment in their people will return more to the company than they're paying out. Even in today's environment, there are private investment banks, hedge funds, and private equity firms that are willing to pay up for good people. The public firms believe that they need to cut those checks if they want to keep their best employees.
When it comes to AIG, I won't deny that the payouts are distasteful, but they do have a definite purpose -- to keep around the people the company needs to wind down the financial products business at AIG. But, you may ask, should the people that brought down the firm even keep their jobs, let alone get big bonuses? That's a fair point of discussion, but bear in mind that if those people are kicked out, the company will likely have to pay similar money to bring in other qualified people. Those new people will face a steep learning curve as they're trying to unwind the business.
Either way, AIG will be paying someone big money to do its dirty work.
Bonuses are a hot-button issue right now, and rightly so. But whether it's Wal-Mart or Goldman paying, bonuses aren't a charity handout; they're compensation with a specific purpose. The tide against big Wall Street bonuses seems to be almost unassailable at this point, but I just hope those slapping down the iron fist on payouts understand all sides of the bonus question, rather than just simply lashing out in blind emotion.
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