Everyone knows about the bail out of the nation financial institutions after they risked too much on junk assets that failed to deliver. Most people also should know that after getting the tax payer funded bail out some of these same banks, investment houses, and insurance agencies used that money to pay billions of dollars in “bonuses” to CEOs and employees. Even though such pay outs look stupid and in this case they are, it isn’t because the workers may not deserve it but it is simple math.
Some business experts have tried to cast bonuses as commissions earned for sales. But again if there are no sales how can you justify a bonus. It is still simple math. If you have red ink on the books then you shouldn’t have any money to pay for bonuses.
The bigger question might be why there will be bonuses at all.
After all, even if bonuses fall 50 percent, that hardly matches the drop in profits and revenues plaguing Wall Street. At Lehman Brothers, the employees still left are expected to receive $3.5 billion in bonuses from the firm’s new owners, Barclays Capital and Nomura.
In a system where huge profits bring huge rewards and huge losses bring, well, smaller rewards, can you blame Wall Streeters for taking big risks in hopes of getting the brass ring?
Take a look at what happened to banks in 2007: Citigroup, for example, reported a profit of $3.6 billion, down 83 percent from the previous year. Many other firms saw similar declines. Yet bonuses across Wall Street declined only 4.7 percent from the year before. The payout was $33.2 billion, according to DiNapoli.
That’s why I get upset about Wall Street people like John Thain and others who still pay out bonus out of whack from reality.
I’ve been taught that bonuses are tied to the performance of myself and the company I work for, and all the places I’ve worked have done that it that way.
At my current job, there are certain benchmarks I have to meet in order to qualify for a monthly bonus and the size is set based on how I did, above that initial bar. The current maximum is 12% of my base pay if I hit 100% of all the benchmarks.
Our managers, on the other hand, get a bonus based on how all of us do in reaching certain goals for the company for that month.
At another job I worked, which was a retail company, bonuses were tied to the “Earnings Before Taxes” of the company. The amount you got depended on the percentage your department contributed to the EBT. At that job, I worked long enough to get one bonus and it was $600 after taxes. I still have the TV I bought with it.
The common wisdom is if you have lost money there should be no bonuses paid out. That’s why people are pissed off about Wall Street bonuses.
There never should have been a bailout.