Speeding up Wall Street bonuses sends old message: Greed is good
Bonuses on Wall Street--and presumably, across Corporate America--may be even more of a holiday gift this year. The threat of the Bush tax cuts expiring in 2011 means that many banks are considering paying them out by year's end rather than during next year's first quarter, The Wall Street Journal reports. .
If you listen to the lawyers, banking leaders are doing this to improve employee's mood. "It's something companies ought to consider because it enhances employee morale and therefore shareholder value," the Journal quotes Mike Shah, a Jones Day lawyer as saying.
In other words, it's good leadership to pay out bonuses early. You would practically be a bad leader if you didn't. "It almost seems a shame not to take advantage of this opportunity," compensation specialists Barbara Baksa and Jesse Brill wrote in the newsletter Corporate Executive.
But by that rationale, good leadership would also include changing established practice just to reap financial gain. Not to mention flouting authority and skirting the rules to meet your needs.
Let's call this what it is: Simple, self-interest decision-making. Perhaps bankers and executives will be happier, and perform better, if they save gobs of cash. Perhaps those bankers will spend enough with that tax savings that they'll help to jolt consumer spending. But I would argue that the long-term impacts of rushing to pay out bonuses to avoid taxes for executives could cancel out, if not worsen, any benefits the shareholder might see.
For one, an extraordinary amount of analysis traditionally has, and should, go into paying out annual bonuses. After the year's numbers are on the books, including the month of December, well-managed companies take time to compare employee performance, make careful decisions about who deserves high and low payments, and double check that the payouts accurately reflect actual performance.
Companies that rush to pay bonuses early in order to avoid higher taxes for executives risk undermining the credibility of their performance measurement system. Employees with mediocre end-of-year performance could get paid for goals that were not met. And that can have just as much of an impact on employee morale as not protecting employees from higher income taxes.
Then consider the argument about shareholder value. Perhaps a short-term employee morale boost could benefit shareholders. But it's really almost impossible to determine whether that's really better for investors than the long-term economic impact the company could face as a revenue-starved 2011 budget continues swelling the nation's deficit.
In the long run, I'd argue that the worst effects of these hurry-up bonuses could be on employee values, and thus, company culture and performance. It sends the signal that it's ok to change working practice, even if completely legal, to expand personal gain. It compounds the notion that nothing matters more than the almighty bonus--not just the receiving of it, but the maximization of it, too. And we all know where that idea got us.
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August 30, 2010; 9:43 AM ET |
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