The Joke Behind Bonuses

The argument in almost all sectors, especially the financial, has always been that if you do not give highly-valued employees bonuses these same people will go elsewhere and productivity will drop measurably. Today, bonuses are the accepted currency for highly paid and valued employees. No one challenges the assumptions underlying them. But, they have always been a joke, and they are much more so today.

 

The argument in almost all sectors, especially the financial, has always been that if you do not give highly-valued employees bonuses these same people will go elsewhere and productivity will drop measurably.   Today, bonuses are the accepted currency for highly paid and valued employees.  No one challenges the assumptions underlying them.  But, they have always been a joke, and they are much more so today.

 

The basis for bonuses is simply that people will go where they can earn the most and to be competitive they must be offered compensation at least equal to the very best in the marketplace.  It assumes that all workers will pick up and leave as soon as their earnings become less or even slightly less than the norm in a sector.  Absent from such thinking is the concept of people working for a company because they want to, are fascinated by the work of the company, and enjoy the colleagues and culture of the enterprise. Such people, without a bonus structure, would be likely to remain even if they earned somewhat less than the competitors. Also absent is the ridiculous assumption that there are infinite jobs out there and that anyone can pick up and leave when they perceive it in their best financial interests.  Bonuses are and have been just a way to perpetuate high earnings for the richest among us. 

 

Today, however, bonuses are an absolute joke.  With unemployment rising daily, can anyone, at any level, imagine leaving a job because bonuses have been eliminated or withheld?  The bonus mania in the banks today is not just a subject for ridicule, it has no merit whatsoever.  It is highly unlikely that any senior people in banks and brokerages will quit their jobs because they did not get a bonus this year.  Spending $20 billion on bonuses, as the banks that received tax payer subsidies did in 2008, was to perpetuate a silly and unnecessary practice in a time when the people getting them were probably praying, very simply, that they would still be employed in 2009. 

 

It would be a very good idea if bonuses were eliminated across the board.  The economic crisis is a good excuse for dropping them entirely.

 

 

Ari Socolow
Ari Socolow: Ari Socolow is the Chief Economist and Editor-in-Chief at BestCashCow. He is particularly interested in issues relating to financial literacy and bank transparency. Since co-founding this website in 2005, Ari has been frequently cited in the media as an expert on local and national savings accounts, CD products, mortgage and loan products and credit card rewards products.

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Comments

  • Palmer

    February 02, 2009

    Totally agree. It really irritates me when Wall Street says they have to pay out bonuses to keep their best people. Where are they going to go? Sure, they could go to a smaller, mid-level investment bank but the money there won't be any better.

    Say no to taxpayer subsidized bonuses.

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