Tuesday, April 7, 2015

Some things really are relative

Smart people who deal in absolutes a lot can tend to forget that many things are relative, even though they might seem like they are not. One million dollars may seem like a large amount of money, but it is only large relatively speaking. It was worth more yesterday and will be worth less tomorrow, to you and me it's a lot but to some men it's change. To the dead it's worth nothing, even if those dead men's faces are imprinted on the bills.

Mistaking relatives for absolutes is a mistake which Stephen Krason makes in the following paragraph in this article:

We see shamelessness in corporate America. Besides the surrender to the homosexualists, we witness CEOs getting large bonuses even when their companies don’t perform well and their employees’ pay stagnates. We see the national Chamber of Commerce pushing amnesty for illegal immigrants because, in the final analysis, they want more workers who will be willing to take minimum wage jobs. In other words, so companies don’t have to pay a just wage.

The CEOs getting the large bonuses even when their companies don’t perform well is something that really makes me shake my head. If it was the CEO who didn't perform well, then all right. But evidence is never brought forward for this. Instead the reflex is to look at the company not meeting bottom line expectations for a period of time and say "That's it; no bonus for anybody!"

It is forgotten or summarily dismissed that companies have many external factors to deal with. Markets, competitors and lawsuits just to name three. And it's possible though for a company which posted a loss of $10 million to have been saved from a loss of $100 million by the quick acting of C-level personnel. I've seen this first hand. Many haven't because this scenario doesn't play well on TV. Who ever heard of a "near-disaster movie"?

It is in a company's best interest to keep these types of people on their staff, and acknowledge their contribution to averting further disaster atop the bad performance. One might argue that the CEO should just accept the fact that he's not going to get a bonus this year because it would look bad. Yeah; looks are so important. The same people who think bonuses for key players are shameless are the ones yammering about the bottom line being God and "unsustainable" business plans which are too short term. So which is it?

As for the workers not getting bonuses, who says they don't? Yes, the loud people who didn't get anything. When I was a worker I used to get a discretionary bonus, sometimes in cash, at the end of the year with the understanding to keep my freaking mouth shut. That's the way it's done right, and that's how I'd do it.

2 comments:

  1. There are also contractual obligations to consider. The executive, like the star athlete, may have a "required minimum compensation" clause in the employment contract. The company may not have the option to not pay the bonus if they want to avoid (much more expensive) litigation for Breach of Contract.

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  2. Those not responsible for or involved in managing a particular business have little rational cause or capacity for defining who gets paid what, because they don't have a window into the "hidden costs" (to use a Hayek term) of particular business decisions.

    Not to say that business don't make objectively bad decisions about how much they pay CEOs or who they hire (see Carly Fiorina at HP). But all that needs to pan out through performance, rather than a priori.

    This won't stop the government from trying, of course, but it is a bad idea.

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