No big bonus for failure

2008-10-27 09:36

Chris Moerdyk

This is the plan. Banks that governments have had to bail out in the two two weeks won't be allowed to pay their tops execs huge salaries and bonuses anymore. Which should make ordinary people like you and me very happy.

The Australian government has gone even further and is talking about forcing not just banks but all big companies to cut back on big salaries and bonuses. Which should make ordinary people like you and me even happier.

Because, when everything is added up, we're the ones who are actually paying all those big salaries and bonuses. So, anything governments can do to get rid of all this out of control corporate greed the happier the consumer should be.

Unfortunately, I can't see it panning out that way.

It seems to me that if you take away corporate greed the whole capitalist system will pretty well collapse or at best just become a lot less efficient. Which in turn will mean that the price of goods and services will become more expensive not cheaper.

Returns

Let's look at the way things work in big business. Then most important thing for any business is return on investment. How much money shareholders make out of the company is what it is all about. Making good quality products, building brands and making customers happy is just a means to that end. And why not? That's called capitalism.

Now, when a company looks for a CEO and other top executives, they look for someone who is going to bring them the maximum return for shareholders. And when they find people they like that, they have to keep them happy and continuously producing more and more bottom line profit.

So, they give them bigger and bigger salaries, higher and higher bonuses and all sorts of other incentives.

Because, the problem is quite simply not enough of these people to go round. And that's why the salary packages and bonuses have got completely out of control.

Now, once government start interfering in that process, all those high earning execs aren't really going to knock themselves out - especially if it's for a relatively menial salary and token bonus. That's human nature.

Greed and power are unfortunately what makes the capitalist world go round. And taking those away will simply kill initiative.

Big rewards

Now, I am not saying I am in favour of big salaries and bonuses. All I am saying is that the realities of life are all about the critical nature of these incentives in terms of getting the business wheels turning.

So, on one hand we consumers pay through the nose for goods and services but on the other more of us end up being employed. If companies start performing badly because of the lack of incentive to those at the top, the first thing boards will do is fire staff. They always do.

So, I reckon the whole idea of governments regulating how much companies can pay their top dogs in salaries and bonuses is just as pointless as imposing legislation that forbids members of parliament and cabinet ministers from having fancy cars, getting free flights, being allowed to have police escorts and generally being treated as though we were their servants and not the other way round.

No-one would be much interested in getting into politics.

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