3/29/2009

How to juggle accounts for a bigger bang?

This incident is still vivid in my mind. Quite many years ago I came to know of this group of companies and how well they paid out bonuses according to each subsidiary's performance. Some averaged 3 months some averaged 6 months and the exceptional ones got 12 months. All looked clean and fair, according to the books. Indeed the payout of bonuses was according to the book, actually according to the cooked book. One of the subsidiary companies actually cooked the book, brought in all future sales, WIP, etc and recorded as realised revenue and profits. That year the company was like boomtown Charlie. Every employee got 12 months bonuses. Not sure how many months the CEO and the top management staff got for cooking the book. What happened the next few years, never mind. The boat will straighten as it reaches the bridge. If the next few years lose money, take lesser bonuses. But one good year every now and then is good enough. For good years, the reward is amazing. For bad years, no sweat, the pay is still there. And if the company goes bust, just too bad. Find another company. This is the beauty of being in the corporate world and managing public companies, and being an employee. You never stand to lose your capital nor your pay, except if the company closes down. But when the company chalks up big profits, take as much as you can. Claim all the credits despite the fact that a large part of the profits were money makes money. Does anyone ask how much profit should be generated from the capital invested before talking about the excess profits? As an example, if the company has an asset of $1b, assuming that this money should give a decent return of 10%, given the risk in business, otherwise park in the bank for guaranteed risk free interest, a $100m profit is just about acceptable. Nothing to crow about. Only when profit is in excess of 10% would it be considered a contribution from the management and employees. (Not counting cooking books) It is not uncommon for management of a $1b company to crow about great profits and demand big bonuses even if the profit is less than 10% of the asset and capital invested. Another common practice by hedge funds or fund managers is to measure their performance with market indices. If they perform better than such indicators, they have done well, and need to be rewarded. Thus if everyone is losing 70% of their investment and if one is losing 60%, that one has done well. Clever accounting and clever logic.

1 comment:

Matilah_Singapura said...

The wonderful thing about being a private corporation as opposed to a public corporation is that you can pay yourself as much as you think you deserve — as long as you are smart enough to earn that money in the first place.

At least in places like S'pore and Hong Kong (and many other places in Asia) you can still run a thriving SME and be sustainable — look at the many family companies all over Asia.

If you try that shit in the west, the govt and its pals in big business will shit all over you and finish you off.

The western press is fast to accuse Asians of "crony capitalism". They are full of shit, and should clean up their own bio-hazardrous backyards first.

What do you think goes on in America and Europe — so-called bastions of freedom and democracy? Just have a look at Wall St and observe the cosy relationships between government and big business. Look at the US Federal Reserve and note that it is a PRIVATE concern protected by an Act of Congress.

The US Fed is the BIGGEST govt-private "partnership" in the whole frickin' world. They can PRINT MONEY, and BORROW as much of YOUR money (even if you live in another country) as they need. If this isn't crony capitalism, then all our mothers are still virgins.

Asian Crony Capitalism? Let it rock, and carry on lah.