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Should Corporate Executives Get Bonuses When They Don’t Produce Results?

August 18, 2009

Updated October 16, 2012

This topic has been around the block a couple of times since the financial collapse occurred. But for some reason there are those defenders of executive bonuses who don’t get it. The Globe and Mail had the heading in one of its sections “Here’s Your $700,000 bonus, kiddo. You earned it.”

The article quotes Canadian academics and others who argue that eliminating bonuses would negatively affect the Canadian economy – and by association, the same effect would occur in the US. They argue that executives would seek employment elsewhere, thus placing Canadian corporations in a weakened state.

I find this argument intriguing, especially when one looks at the mess that various Canadian and American CEOs and their sidekicks have made of their companies. Ever hear of Nortel? A once mighty and proud Canadian company has been reduced to near ashes, most recently with companies like Ericsson and RIM fighting over its remaining juicy assets. Nortel’s rapid descent took only a few years, helped to a large degree by crooked accounting practices and gross senior management incompetence. But even before Nortel’s nosedive following the 2001 IT bubble burst, former CEO John Roth missed the boat on the impending wireless trend. But he took his massive bonuses and severance and left Dodge in a hurry.

And what about the huge bonuses paid to American financial CEOs. Does anyone recall former Merrill Lynch CEO John Thain who asked his board for a whopping $10 million (US) bonus? Public outrage quickly ended that lunacy. Andrew Hall, a Citigroup energy trade is in line for a magabonus of $100 (US). Or how about Ed Clark, TD Bank’s president, who received $11 million (Cdn), $3 million of which he said he would donate to charity.

Executive bonuses do serve an important purpose in a capitalist economy. CEOs are expected – at least in the past – to possess the needed visionary leadership, managerial skills, and relationship building competencies to propel their companies forward during times of economic growth and to keep the ship upright when times are tough. But what has happened over the past decade, and which has been amply reported in the media, is that the remuneration gap between top corporate executives and regular employees has widened obscenely. It’s now acknowledged that many corporate boards have engaged in implicit collusion with CEOs and presidents when it comes to remuneration packages.

Ethics? What ethics! They don’t count in the rough and tumble of corporate North America, where the mentality is self-serving and aimed at maximizing one’s own financial gain. As for the reason why CEOs have jobs – that being leading corporations not only to increase shareholders’ wealth but also to play a responsible role in society – they have conveniently forgotten this.

For an enlightening perspective on how to fix executive bonuses, management guru Henry Mintzberg provides some practical solutions in a June 2012 Wall Street Journal article.

One of my earlier posts dealt with 10 Lessons for Aspiring Leaders. Those who are leading companies or who are on the way up might want to take a moment to reflect on these lessons and what it is that motivates them to go to work every day. Is it that big sack of cash at the end of the rainbow that’s your motivation? Or do you, Mr. CEO, want to actually build and position your company so that it grows steadily and that it will be around in 50 years?

Photo by J. Taggart (Sears Tower, Chicago)

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6 Comments leave one →
  1. Gina permalink
    November 7, 2010 4:06 am

    When I think of all the years in which top executives sucked off of my creative administrative work for their personal credit and reward, I can only think of their ongoing so-called bonuses as pure Bullshit.

    • November 7, 2010 1:40 pm

      Indeed, Gina. And when North American companies stop the practice is unknown.

  2. August 18, 2009 9:25 pm

    Thanks Brady for your sharing your views. I was thinking of adding in my post the issue of commissions, etc that account for a vital part of many people’s remuneration from work. For example, sales and server jobs depend heavily on commissions and tips. If you provide lousy service, you’ll be eating Kraft dinner and beans.

  3. Brady Patterson permalink
    August 18, 2009 8:03 pm

    The size of some of those corporate bonuses is outlandish, and some of them should be scaled down (a lot). They should also be tied to specific measurable objectives. However, earning a “bonus” does not necessarily have to imply exceptional performance. It could just be part of a standard compensation package that is earned for doing one’s job. In our society, compensation takes all forms. You can have salary, commissions, piecework rate, bonuses, stock options, hourly wage, fee for service, shift premiums, other perks, etc. or often some combination of these. A bonus is just another form of compesation.

    A bonus is usually a special incentive for good perforance, but then in a sense, so are all the rest. If one does not do one’s job, one should get neither salary nor bonus – one should get shit-canned, of course.

  4. August 18, 2009 4:16 pm

    I would like to think that corporate executives are eligible to get bonuses when they are able to produce certain results. Not when they don’t produce any results.

    • August 18, 2009 5:29 pm

      Exactly. When will we return to the good old days when bonuses actually represented something?
      Thanks Charles.

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