kchoya
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Post by kchoya on Mar 18, 2009 17:20:46 GMT -5
Am I the only who is getting tired of all this holier-than-thou handwringing in Washington over the AIG bonuses, the corporate parties, etc.?
First it was John Kerry and others having a conniption that bailed-out banks and other companies would dare to reward their employees by sending them on a retreat.
Now, there's the whole blow-up over the AIG bonuses and it's coming from both sides of the aisle. It's disgusting, frankly. All this talk about taxing 100% of the bonuses is stupid (not to mention breaking all sorts of constitutional provisions, etc.) Why not tax 100% of the salary of Rush Limbaugh and Sean Hannity if you disagree with them? They're on the public airwaves, so there's a nexus there.
Here's the attitude I have a problem with:
Don't we elect these people to have a buffer in between the "fears and anger" of the masses and what a reasonable outcome should be? Why not just have a national referendum on who should make how much money/
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Post by strummer8526 on Mar 18, 2009 17:57:31 GMT -5
Don't we elect these people to have a buffer in between the "fears and anger" of the masses and what a reasonable outcome should be? God I wish the Right had this mentality when discussing international affairs, terrorism, war, etc. In terms of the complaining about the inefficient usage of the bailout money, I actually very much agree with those who think that it is absurd to take your employees on a "retreat" with money that was only given to you so you could make loans and keep our economy afloat. I agree that it's hypocritical coming from Congress. And I agree that messing with the tax code is risky. We need to clean up the tax code, not add in one-time punitive provisions. So I agree that the messenger (Congress) isn't great, and the proposed solution doesn't appeal to me. But the problem of wasteful spending by failing companies IS a problem. |
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EasyEd
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Post by EasyEd on Mar 18, 2009 18:13:44 GMT -5
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TC
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Post by TC on Mar 18, 2009 19:37:15 GMT -5
I gotta be honest, I love it. It's a lot of noise about what is now an insignificant amount of cash but I love that executive bonuses and executive compensation are under the crossfire. Maybe as AustinHoya says it'd be better handled by a corporate board, but whatever, it's getting more press this way. If you're going to restore any confidence in people that stocks are a place to be, these are issues that need to be addressed one way or another.
As for paying bonuses for "retaining employees" in AIG Financial, give me a break. Not only is their talent not needed, all of their experience and expertise in credit default swaps will likely be obsolete in the post-2008 world as well.
Plus, it made Glen Beck cry and I love seeing Glen Beck cry.
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GIGAFAN99
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Post by GIGAFAN99 on Mar 18, 2009 21:39:02 GMT -5
I gotta be honest, I love it. It's a lot of noise about what is now an insignificant amount of cash but I love that executive bonuses and executive compensation are under the crossfire. Maybe as AustinHoya says it'd be better handled by a corporate board, but whatever, it's getting more press this way. If you're going to restore any confidence in people that stocks are a place to be, these are issues that need to be addressed one way or another. As for paying bonuses for "retaining employees" in AIG Financial, give me a break. Not only is their talent not needed, all of their experience and expertise in credit default swaps will likely be obsolete in the post-2008 world as well. Plus, it made Glen Beck cry and I love seeing Glen Beck cry. TC, pushing paper around and sucking up to your boss while getting underlings to suck up to you and populate pre-built models that incorrectly value derivatives is a very special skill. It's worth at least 7 times more than being a neurosurgeon. |
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TC
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Post by TC on Mar 18, 2009 22:13:44 GMT -5
TC, pushing paper around and sucking up to your boss while getting underlings to suck up to you and populate pre-built models that incorrectly value derivatives is a very special skill. It's worth at least 7 times more than being a neurosurgeon. Oh, at least 7 times. But we cannot judge. No, we musn't judge what someone makes in dollars as compared to the overall social worth of their job.* * Except in the case of unions, then it's "the demise of a civilization" (Bernie Marcus' words) and rabid hysterics. |
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Post by Coast2CoastHoya on Mar 19, 2009 1:41:34 GMT -5
Let's not forget that the people who make the most money are also automatically the most economically productive, regardless of whether they actually produce anything, or whether what they produce is actually of value. God Forbid that monetary compensation not be part of a rational actor model.
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The Stig
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Post by The Stig on Mar 19, 2009 9:48:55 GMT -5
I think this problem is way bigger than AIG. Bonuses automatically triggered by contracts? Doesn't that defeat the entire purpose of a bonus? I thought a bonus was supposed to be a reward for strong performances. Executives of a company that performed as badly as AIG should NEVER be getting a bonus, regardless of whether you're getting taxpayer money or not. That's rewarding failure.
Big bonuses for executives at companies that are rolling in the money? Nothing wrong with that at all. Big bonuses for executive of a company that's failing so badly that it needs the federal government to bail it out? There's something very wrong with that.
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EasyEd
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Post by EasyEd on Mar 19, 2009 10:21:50 GMT -5
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TBird41
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Post by TBird41 on Mar 19, 2009 10:33:36 GMT -5
I think this problem is way bigger than AIG. Bonuses automatically triggered by contracts? Doesn't that defeat the entire purpose of a bonus? I thought a bonus was supposed to be a reward for strong performances. Executives of a company that performed as badly as AIG should NEVER be getting a bonus, regardless of whether you're getting taxpayer money or not. That's rewarding failure. Big bonuses for executives at companies that are rolling in the money? Nothing wrong with that at all. Big bonuses for executive of a company that's failing so badly that it needs the federal government to bail it out? There's something very wrong with that. Usually the bonuses are triggered if certain performance standards are met. Sports contracts have these all the time, and I assume its not to unusual for bonus clauses to be inserted in other employment contracts. Now, the criteria for earning these bonuses? Yeah, odds are they were way to easy to meet. |
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TC
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Post by TC on Mar 19, 2009 11:18:38 GMT -5
Now, the criteria for earning these bonuses? Yeah, odds are they were way to easy to meet. That's a generous way to put it. A more honest way to put it would be to say that they took incentive-based compensation and made impossible to not meet it (a.k.a. made it guaranteed compensation). |
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TBird41
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Post by TBird41 on Mar 19, 2009 11:23:15 GMT -5
Now, the criteria for earning these bonuses? Yeah, odds are they were way to easy to meet. That's a generous way to put it. A more honest way to put it would be to say that they took incentive-based compensation and made impossible to not meet it (a.k.a. made it guaranteed compensation). Sorry. I should have put it like this: "Yeah, odds are they were waaaaaaaaaaaaaaaay too easy to meet." |
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CO_Hoya
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Post by CO_Hoya on Mar 19, 2009 15:08:06 GMT -5
Is there a financial (e.g. taxation) reason that some industries, has a significant portion of employee compensation through retention bonuses (and other types of bonuses, I'd guess) rather than salary?
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Post by sleepyjackson21 on Mar 19, 2009 15:26:32 GMT -5
Yes. I work for a hedgefund in the capacity of a specialist/derivatives trader. My salary is a pittance of my overall compensation and my bonus has a baseline and the rest is entirely incentive/merit based. Bonuses are a necessary part of compensation and they aren't bonuses like those awarded to say lawyers or accountants. Financial firms need capital and when they have capital, they hold on to that capital. So the salaries that they pay out over the course of a year are a very small percentage of total compensation.
I should explain the capital part better. Hedgefunds have 100's of positions and if you're a full service broker dealer, you have 1000's of positions. You obviously need capital for those positions. The difference in the amount of capital needed to fund operations for a trading firm vs a law firm is massive, thus the different compensation structure.
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CO_Hoya
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Post by CO_Hoya on Mar 19, 2009 15:38:37 GMT -5
Err, pretend that I know nothing of finance.
Could you elaborate a bit more about:
How are they different than other types of business? Seems like everybody would hold on to capital if they could.
And, since you didn't mention it, am I correct to infer that there is no tax advantage to the bonus pay structure?
I've always wondered about this stuff.
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Post by sleepyjackson21 on Mar 19, 2009 15:55:21 GMT -5
A law firm has to pay for normal operations but doesn't deploy capital through a lawyer. The lawyer bills his clients and they make money that way. A trader is using the firms capital to make money. One trader can have millions and millions of dollars worth of positions. A financial firm is just alot more capital intensive than a law firm.
As far as tax advantages, most bonuses are taxed just like normal income. There are bonuses that come in the form of a dividend but in that case the employee has a stated ownership interest in the company. The firm does have a tax advantage on the dividends.
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Post by sleepyjackson21 on Mar 19, 2009 16:19:10 GMT -5
CO, i also wanted to say that i obviously have no idea what AIG's compensation structure is like. They are a financial services/insurance firm that isn't explicitly a trading firm and they are a public company. Wall Street firms like Goldman tend to pay much larger base salaries than private hedge funds. Part of that is because it's Wall Street and part of that is that the cost of living is higher in New York.
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jgalt
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Post by jgalt on Mar 19, 2009 17:14:02 GMT -5
A law firm has to pay for normal operations but doesn't deploy capital through a lawyer. The lawyer bills his clients and they make money that way. A trader is using the firms capital to make money. One trader can have millions and millions of dollars worth of positions. A financial firm is just alot more capital intensive than a law firm. As far as tax advantages, most bonuses are taxed just like normal income. There are bonuses that come in the form of a dividend but in that case the employee has a stated ownership interest in the company. The firm does have a tax advantage on the dividends. Just so i am sure i am clear, this is how i am thinking about it: If we take a Doctor's Office and a Financial Insitution and each have expected salary expenditures of $1200 (well keep it simple) for the year. The Doctors Office will pay salary bi-weekly (so $50 a week) because their revenues are based on how many patients come in and use there service. The Financial Institution on the other hand Makes money by investing their assets over the year, so the will want to pay as little as possible through the year, say only $5 bi-weekly and then pay the rest ($1080) as bonuses so they have the maximum amount of time to earn money on their capital. Is that right or am I missing something? Also, would you pay the capital gains rate on any exercised options instead of the normal income tax? or is it different because they are paid as "salary" |
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Post by sleepyjackson21 on Mar 19, 2009 17:48:51 GMT -5
That's correct JGalt. I can only speak for myself since every firm has a different compensation structure but my stated salary is minimal and has barely budged in a decade. Virtually everything is in the form of a bonus and is merit based with a few clauses thrown in so traders won't free roll against the firm. We're private so we don't have options .
Like i said before, the big Wall Street firms tend to pay much larger base salaries and i suspect AIG pays like them. They are still more incentive based than a law firm or doctor's partnership but certainly less than some hedge funds or strictly floor trading firms. Then, you certainly have to add in the fact that these firms made bad decisions and lost ALOT of money and then had to have the government bail them out.
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Filo
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Post by Filo on Mar 19, 2009 20:17:30 GMT -5
If I recall correctly from my days working in a public company, you do get the advantage of paying the capital gains rate on exercised option as long as you hold the stock you received upon exercise for the required period (one year now? used to be 18 months a while ago?).
The stock option area is another area of compensation that is so abused. Companies just set moving targets for the exercise price. You have options with a strike of 20, but you mismanaged the company so badly that the stock is now at 10? No problem - the Board of Directors just approved a repricing of all those options to $10.
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