The Bonus Problem

Everyone is screaming about bonuses. I don't need to tell you that a lot of people (myself included) are livid that companies receiving bailout funds are giving bonuses. Meanwhile on the opinion pages of newspapers and periodicals - as well as in legislative sessions - some business experts are decrying the fact that if bonuses are eliminated the top workers will go to other companies and they will lose their talent.

This, my friends, is the same kind of misplaced, 'what's in it for me' thinking that has brought us to this fun economic time.

There are two issues here. First, what is a bonus? And second, how should a company value its employees and determine whether they should be retained?

A bonus is:
1) something given or paid over and above what is due.
2) a sum or money granted to given to an employee, a returned solider, etc., in addition to regular pay, usually in appreciation for work done, length of service, accumulated favors, etc.
Source: Dictionary.com

By it's very nature a bonus is not a guarantee. If it's guaranteed by your contract, as far as I'm concerned, it's not a bonus. This works both ways -- employers shouldn't guarantee a bonus and employees should not budget based on their bonus. When I lived in NY, I knew Wall Streeters who counted on their bonus to pay their bills. Counting chickens before they've hatched is what got us into this whole mess.

In most industries a 5-10% bonus is very good - something is wrong with the system when your bonus is multiple times your salary. If the jobs that traditionally receive these mega-bonuses are worth big bucks, then then their base salary should reflect it. But the key issue here is a bonus is optional and not a right.

Second, you have an argument that talent will go elsewhere if they do not receive a bonus. First of all, there are plenty of talented people who work in industries that do not give bonuses. They stay in their jobs for a multitude of reasons, so crystallizing this argument down to 'bonus = retention' is fallacious.

In addition, when you set up a tier of workers as your stars and deem them irreplaceable you are putting your company at risk. You are setting up a system to cater to those stars rather than having your employees focus on being cohesive and working to serve the best interests of the company. This is not to say that every worker functions on the same level and that stand-outs should not be recognized. But when there's a system that rewards segments of a company that made money, even if the overall company is losing money, it begs the question - while that part of the company was making money were they doing it to the determinant of another segment? If you are putting all your eggs in the basket of your "star performers" are you creating a company with a replicable business model for consistent success? Or are you taking a short cut that doesn't include the strategy and systems that will support long term corporate growth? I'm a big believer that bonuses should be based on company performance, not individual performance.

But it comes down to this . . .
If you have a starving family and someone gives you $5, you don't give $1 to your kid who made money last year on his paper route, even though it allowed the family to pay some of its bills over that year. You spend the money on food and farming so you have a future.

This year, these mega-bonuses starve the economy. The money needs to go to the future. The hard truth is if these companies fail, the bonus problem will be solved permanently.