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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.

Read more from Jena McGregor:

* Oh to work at Netflix

* Reining in CEO pay

*
Paranoia may have helped Lisa Murkowski

By Jena McGregor

 |  August 30, 2010; 9:43 AM ET |  Category:  Bad leadership , Corporate leadership , Goal Setting , Leadership Save & Share:  Send E-mail   Facebook   Twitter   Digg   Yahoo Buzz   Del.icio.us   StumbleUpon   Technorati  
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It is mind-boggling that the recession began when billions of dollars in derivatives disappeared -- not just that they disappeared, but also that they were also largely assets without any substance.

The Wonders of Wall Street have perfected "notional" capital -- highly leveraged bets on bets on bets on something. And for this, they are paid not only absurdly, but early!

Before any of the posters here can claim that taxes or regulation would "squash innovation," they should be required to explain what earthly good these innovations do, and why anyone should actually pay anybody for creating these cancers.

Posted by: thmas | August 31, 2010 11:52 PM

greed is when someone steals a chunk of the pie so big it leaves so little for the rest that they starve......the corporation has been taking jobs away since the 70s...paying third world nation wages while making first world nation profits and using the U.S. as their host nation(nice highways,great security,strongest military in the world) keeping their home base here while producing their goods abroad . That is not only too much greed,but counterproductive..wars and civil strife are born of this behavior.

Posted by: kiler616 | August 31, 2010 4:43 PM

Here are the top ten, along with their estimated worth.

1. Sen. John Kerry (D-Mass.): $188.6 million

2. Rep. Darrel Issa (R-Calif.): $160.1 million

3. Rep. Jane Harman (D-Calif.): $152.3 million

4. Sen. Jay Rockefeller ( D-W.Va.): $83.7 million

5. Rep. Michael McCaul (R-Texas): $73.8 million

6. Sen. Mark Warner (D-Va.); $70.2 million

7. Rep. Jared Polis (D-Colo.): $56.5 million

8. Rep. Vern Buchanan (R-Fla.): $53.5 million

9. Sen. Frank Lautenberg (D-N.J.): $49.7 million

10. Sen. Diane Feinstein (D-Calif.): $46.1 million

Posted by: corebanks1940 | August 31, 2010 4:19 PM

Of course these people are going to go through every possible contortion or dodge to avoid paying income taxes. They demonstrated their "leadership" qualities when they had the unmitigated gall to take our taxpayers' bailout money and pay themselves the usual obscene salaries and bonuses.

Posted by: ejs2 | August 31, 2010 4:04 PM

I am not an expert by any means in economics, but my common sense told me the housing crash was going to happen except I expected it to happen about a year earlier. I mention this only because you don't need to be a meteorologist to know which way the wind is blowing. Reagan brought in the whole culture in this country that "greed is good." I was here before and after as and adult and the difference it has made in our culture is substantial. As a retired teacher with a small retirement and my own small business, the only investments I made were through my retirement and I had a choice of mutuals or variable. I chose mutuals. Playing Wall Street has always been big time gambling to me. Growing up in the 50s, our values were about contribution: what can I contribute to my community or world. To me, this article is spot on.

Posted by: gordon7 | August 31, 2010 3:00 PM

This article smacks of being written by someone with no experience in having ever taken entrepreneurial financial risk to create profits.

First, creating profits is good. Without profits our civilization would crumble immediately.

Second, those who create the profits deserve to be rewarded for their hard work.

The banks are not determining policy. They are reacting to it. Everyone tends to react in their own self interest. If the government desires a different response, it should make a different tax policy.

For the author to tell businesses what they should do with their earned profits (with moral indignation) is no different than someone telling her she is immoral for not donating her earned salary to saving the whales or to the national deficit etc. It's incredibly morally arrogant (and morally destitute).

It's hard to take the analysis seriously in this article. For instance, "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." This sentence seems to try to tie investor returns with the company's performance (OK so far) and then twists towards the national deficit?? Is the board of directors supposed to make business decisions based on effects to the national deficit? That is illogical nonsense.

Please please be more careful (and intellectually rigorous).

Posted by: DeOpressoLiber | August 31, 2010 2:06 PM

"Speeding up Wall Street bonuses sends old message: Greed is good"

If people are not into investing to make a profit, why are they investing at all? They may as well put their money in a coffee can and bury it in the back yard.

What is greed anyway: wanting a 5% return, 10%, 15% or what?

Posted by: ahashburn
******************************************

Wall Street is the direct beneficiary of the screwing of anyone trying to save money the traditional way by depositing it savings accounts.

I can't do much better than 1.5% in a saving account and it's been that way for several years. Those greed-heads should just be thankful the Fed hasn't raised interest rates, causing an exodus of people from the securities market who are sick of being forced to invest in a highly volatile market because they'll surely lose money from inflation if they leave it in a saving account or CD.

Just ask people whose retirement funds were devastated by the GOP depression how much sympathy they have for Wall Street employees.

Posted by: st50taw | August 31, 2010 12:40 PM

As if the vast majority of Americans or the world are going to have a more negative opinion on early bonuses for executives to avoid taxes. We've watched hundreds of billions flow to the cretins who brought the economy to its knees and they're going to get another bonus paid early when we haven't even recovered yet?

This is just another slap in the face to shareholders to benefit the elite.

Posted by: theobserver4 | August 31, 2010 12:30 PM

"It's something companies ought to consider because it enhances employee morale and therefore shareholder value,"
----------------------------------
What tripe! If there was ANYTHING to this "spin", the DJIA would not be hovering at 10,000, but be at 38,000.

Posted by: shadowmagician | August 31, 2010 12:21 PM

Is the writer aware that the IRS hates deferred compensation?

The government wants its money now - not later.

Section 409A of the Internal Revenue Code (enacted a few years back) punishes people for deferring compensation earned in one year to a later year, which is what bonuses do. There are many complex rules and harsh penalties that are driving businesses crazy trying to comply with anti-deferral rules.

Now, this writer decides that when people voluntarily do what the IRS spends a lot of time and effort trying to get people to do, the tax payers are somehow "bad."

Why is it that Newspapers don't hire people who understand the world?

Is it actually a Newspaper job requirement to be clueless?

Posted by: jfv123 | August 31, 2010 9:33 AM

If you've studied Industrial Psychology at all you know that money by itself is never a satisfier, so money cannot improve morale by itself. What it can do though is motivate performance and that's how it's typically used - if you meet certain goals this is what your bonus is going to be. Done right they might even be effective in motivating meeting the goals earlier. In any case, why wouldn't a company accelerate paying out a bonus it is going to pay out in any case in order to increase the value to the employee by avoiding taxes? Just because you don't get a bonus in your job does not make it wrong for someone else to earn one in their job. This is the problem with writing stories without either the research behind them or the real world experience necessary to understand what's happening.

Posted by: rogernebel | August 31, 2010 8:23 AM

What tripe. And the WAPO is going out of business why?

Posted by: davidholt123@comcast.net | August 31, 2010 4:05 AM

If greed is so bad, then donate your entire salary to charity.

Don't be greedy and keep it to yourself.

Posted by: tokenwhitemale | August 31, 2010 3:19 AM

Well said. It would be nice to think that after seeing where 30 years of constantly increasing levels of greed and selfishness got us, that we could start balancing the quest for profits with other values, such as sustainability, charity, community, friendship, and love. Of course, I will probably now be criticized as naive for saying this in a business context, but it's very important for people who care about things other than profits in the business world to speak out now, or risk even greater dangerous, criminal behavior on the part of amoral individuals pursuing wealth at any cost in the future.

Posted by: beautifullynumb | August 30, 2010 2:46 PM

"Speeding up Wall Street bonuses sends old message: Greed is good"

If people are not into investing to make a profit, why are they investing at all? They may as well put their money in a coffee can and bury it in the back yard.

What is greed anyway: wanting a 5% return, 10%, 15% or what?

Posted by: ahashburn | August 30, 2010 1:10 PM

Wall Street to America:

"I've got mine, screw all you losers!"

Posted by: lonquest | August 30, 2010 12:14 PM

The comments to this entry are closed.

 
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