4/08/2009

Corruption of the bonus system

The first thing that Obama did right was to curb the abuses of the compensation and bonus payout system in corporate America. No longer will the corporate big wigs be allowed to pay themselves crazy by abusing the trust of the minority shareholders and corruptly paying themselves with their so called bonus schemes. They design and decide how much to pay themselves, with approval of course. Actually I can't use the term corrupt as the bonus schemes were all approved by the board of directors. The payout is thus legitimate and above board, objective and according to an approved formula. The top management could even claimed that every cent they got from the bonus system is deserving. And some companies were paying their CEOs tens of millions even when the companies were bleeding, losing hundreds of millions. Superficially the bonus system appears sound. But as they said, the devil is in the details. Were the formula transparent and made known to the shareholders, and accepted by the shareholders? What were the factors in the formula and how relevant were they to the health of the companies? Could the formula pay out exorbitant amounts, unlimited amounts at the expense of the shareholder's interest? Could the factors be juggled and doctored by the accountants to reflect whatever they want to and to maximise the payout? The other problem with the bonus system is that it can be used to pull wool over the eyes of the shareholders. The top management can, for cosmetic reasons, adopt a pay freeze, smaller increases, or even a pay cut to appease the shareholders. But on the contrary they could boost up their bonus payouts from 3 mths to 6 mths, or 6 mths to 12 mths or 24 mths. No one is wiser except the people designing the scheme and managing the scheme. Transparency is important but not often practised. Obama did the right thing to freeze or cap the bonus payout. And now the American corporate wants to side step this by paying themselves upfront. The top management will scheme and scheme to pay themselves as much as they could as they don't own the companies. They were just employees. Grab as much as they can when in office.

6 comments:

Matilah_Singapura said...

Once the state gets involved in the private sector, some degree of corruption is inevitable.

Inasmuch as the sg.gov would sue to defend it's so called "incorruptibility" doesn't alter the fact that it is impossible to have absolute power and no corruption. Of course in today's non-objective world, definitions of words can take on any meaning or no real meaning in particular. That doesn't change the objective reality however: if you have govt involvement in private enterprise, corruption WILL occur.

However, I'm not against corruption, unlike many absolute moralists out there who make it their mission to identify and stop any "evil" in the world. Having a state, means having to some degree , corruption.

Suck it in, and live with it.

Anonymous said...

They call that legitimised corruption. And then there is criminal indulgence, which is also approved and above board. What will they think of next?

Lost Citizen

Anonymous said...

If the top executives are too expensive, well sack them, is what was suggested by a congressional panel overseeing the U.S. financial rescue, as possibly a better way to
solve the economic crisis.

The idea that if the mgmt is too damn good and unaffordable, getting rid of them might be a better alternative to save money, sounds very logical to me.

Anonymous said...

Corruption is like natural phenomenons such as earthquake and tsunami. Nobody likes it, but it will just happen.

Fortunately or otherwise, corruption is said to be almost non-existent as our leaders and civil servants are handsomely paid to prevent corruptions from happening.

However, many suspect legalized corruptions are rampant in SIN, how they have come to such a conclusion is beyond my comprehension.

patriot

Jaunty Jabber said...

Is Durai considered "under-paid" that he have to succumb to corruption?

redbean said...

talent wise he is ministerial material.