Help me understand this - retention bonuses

Danny Tse

>>>RANT MODE ON<<<

By now, we all have heard of AIG's infamous "retention bonuses" to the tune of $165 million. Well, Fannie Mae and Freddie Mac just announced "retention bonuses" of $210 million (see story here).

Let me get this straight....some of these people basically ran their respective companies into the ground and we still want them around? Why? I'm sure some of these people deserve bonuses, but what about the people who are responsible for the collapse of their companies? Some of these people can get millions from their employment contracts, by leaving, even if they forfeit the "retention bonus". Doesn't Wall Street know what "pay for performance" mean?

$165 million or $210 million don't sound like huge money, especially when compared to the billions and trillions being thrown around. However, even $1 million is a lot of money to a school in need of books, computers, or a roof that doesn't leak. Or to the families of those 4 police officers killed in the line of duty here in the Bay Area. Don't some of these people have morals?

>>>RANT MODE OFF<<<

rayslifecycle

Danny Tse wrote: »

we still want them around? Why?

I don't.
But the big shots do - and they have scared many into thinking the world will end if they don't do as they say.
I don't buy it, and although I don't have the power to stop it, I do have the ability to say I don't support it............

Don't tase me bro

shack

The retention bonuses are often for those considered critical in understanding the inner workings of a business. If all the employees that know all the stuff leave...starting over would be much more costly than paying these people to stay.

Secondly, who says the ones getting paid to stay are the ones that made the costly decisions? Often times they were merely carrying out the orders and directives of someone higher up. If so they may be the best ones to find and fix the problems because they know where all the bugs are.

The big financial companies have many divisions that cross many different business segments. In some of the big companies that are getting blasted, the bonuses are being paid to people who actually MADE MONEY for the company. If these people decide they don't need the aggravation and leave for just as much or more money than what they are currently getting paid (plus get away from all the crap), that just makes the problems even bigger.

It is much more difficult to manage a business that is having problems...much less near catastrophic issues some are experiencing now. The best business talent/knowledge isn't cheap and the best will always have a place to go. The companies that are having problems need the best they can get to survive...and if some of those best already work for them...they are going to have to pay to keep them.

Ricardo

shack wrote: »

The retention bonuses are often for those considered critical in understanding the inner workings of a business. If all the employees that know all the stuff leave...starting over would be much more costly than paying these people to stay.

Secondly, who says the ones getting paid to stay are the ones that made the costly decisions? Often times they were merely carrying out the orders and directives of someone higher up. If so they may be the best ones to find and fix the problems because they know where all the bugs are.

The big financial companies have many divisions that cross many different business segments. In some of the big companies that are getting blasted, the bonuses are being paid to people who actually MADE MONEY for the company. If these people decide they don't need the aggravation and leave for just as much or more money than what they are currently getting paid (plus get away from all the crap), that just makes the problems even bigger.

It is much more difficult to manage a business that is having problems...much less near catastrophic issues some are experiencing now. The best business talent/knowledge isn't cheap and the best will always have a place to go. The companies that are having problems need the best they can get to survive...and if some of those best already work for them...they are going to have to pay to keep them.

Right on Steve. The problem is, how do you make the general public understand this, after all that happened. Oh well, just another round of gluttony for the press.

BeRad

shack wrote: »

The retention bonuses are often for those considered critical in understanding the inner .....

Excellent perspective.

cnh

One of the things that always amazes me about this kind of argument is the 'belief' that there is not an ABUNDANCE of talent in the U.S. Thousands of young Turks as good or better than what is 'already' out there!

It is certainly the case that 'we' do not know who was directly responsible for our current mess and that a lot of 'good' people may still be working in these enterprises. But the idea that someone is irreplaceable. Well, you should try working in my field, where EVERYONE is made to feel insecure all the time. Where fashions change in the blink of an eye, and old-timers are considered passe.

The belief in meritocracy is important. But let us not imagine that 'everyone' who got to the top did so through 'pure' talent. I would remind people of a very well known bestseller from the 70s called the Peter Principle. A good read, and an interesting critique of how far one can rise before one's incompetence shows...or even if it ever shows.

cnh

shack

cnh wrote:

One of the things that always amazes me about this kind of argument is the 'belief' that there is not an ABUNDANCE of talent in the U.S. Thousands of young Turks as good or better than what is 'already' out there!

It is certainly the case that 'we' do not know who was directly responsible for our current mess and that a lot of 'good' people may still be working in these enterprises. But the idea that someone is irreplaceable. Well, you should try working in my field, where EVERYONE is made to feel insecure all the time. Where fashions change in the blink of an eye, and old-timers are considered passe.

You are certainly making a lot of assumptions that I did not propose.

I SAID they are valuable SPECIFICALLY because of their knowledge about the company/industry they are in. Who understands the inner workings of of company like AIG...the "young turk" or the "old timer" (regardless of age) who designed/developed/implement the systems/businesses and who the important players are?

The person who can tell you why something happened, knows all the background, where to find the doucumetation, who can accesss it, who can fix it...is irreplaceable vs the person who comes in and knows nothing about anything...other than great ideas that may or may not work in the future.

When you are talking about the financial service industry...the people who are considered to be "profit centers" typcially got there through contacts, networks, centers of influence and a customer base developed over many years.

I never said there wasn't new fresh tallent that could ultimately do the job. I said the people that are needed NOW are the talented, knowledgable, motivated INSIDERS who can fix things NOW...not down the road when the "young turks" get up to speed. They don't have the luxury of that kind of time.

SKsolutions

:MEMO:

To: All AIG employees
From: HR

From this date forward, all former "Performance Bonus" pay shall now show up in your pay as a ''Retention Bonus". I'm sure this will help with the public relations issues that we have been experiencing, and you will experience no interruption in your indefensible compensation package. It has been suggested that you refrain from excessive displays of wealth during the time that it takes for this to blow over, so that we can return to the further leveraged exploitation of investors and taxpayers alike. Thank you for your understanding and patience.

tonyb

I don't have a problem with retention bonuses,and Shack is right on this.Finance is very complicated and crosses many lines,international and domestic with all different laws and regulations to adhere to.But you have to admit,for all the hoopla they made out of AIG bonuses,then to turn around and hand out more to Fannie and Freddie exec's,a bit **** backwards,dontcha think?

avelanchefan

Some of these people at AIG were asked to forgo their salaries for a year and receive their money in one lump sum at the end of that year, to help AIG with this crisis. When they went to get paid they were classified as bonuses. Why do you think they were put in their in the first place? I am not saying all of this was for good people, but a LOT of hard working people at AIG got royally screwed over....by our government.

The gentleman below agreed to work for a single dollar for a year in order to get his pay at the end of that year...all to help out AIG.

Tell me this, would you not be near full out tazmanian devil if you agreed to work for a single dollar only to have the government tell you your SALARY will be taxed 90% because you don't deserve it? AND how can the government break their own law they passed? Chris Dodd specifically put this in their, they knew it was in there. I could go on...bunch of bull chit if you ask me.

http://www.nytimes.com/2009/03/25/opinion/25desantis.html?_r=1

Hobbyguy

Nobody is worth the kind of money these executives are making. When you consider how little the survivers of slain soldiers/police officers/fireman who lost their lives in the line of duty are reimbursed.

treitz3

Good point HG.

JohnLocke88

Article I, section 10, clause 1 of the US constitution. It states:
“No State shall enter into any Treaty, Alliance, or Confederation; grant Letters of Marque and Reprisal; coin Money; emit Bills of Credit; make any Thing but gold and silver Coin a Tender in Payment of Debts; pass any Bill of Attainder, ex post facto Law, or Law impairing the Obligation of Contracts, or grant any Title of Nobility."

Were the retention bonuses stupid, yes. Who's to blame for the bonuses going through? Congress. They should have asked, they didn't. They could have made the TARP funds contingent upon the voluntary canceling of the contracts, but they didn't. Their fault, not AIG's.

wizzy

Hobbyguy wrote: »

Nobody is worth the kind of money these executives are making. When you consider how little the survivers of slain soldiers/police officers/fireman who lost their lives in the line of duty are reimbursed.

It's supply and demand. The supply of people willing to be police officers and soldiers is high enough that wages and compensation will be low. The supply of people who can run or reach high levels in a large corporation are small.

One of the gotchas of the capitalist supply 'n demand system.

People want police officers and teachers to make more. Then they vote for the person promising the biggest tax cuts.

Hmmm

Fongolio

avelanchefan wrote: »

a LOT of hard working people at AIG got royally screwed over....by our government.

And a LOT of hard working people got screwed over .....by AIG.

avelanchefan

Fongolio wrote: »

And a LOT of hard working people got screwed over .....by AIG.

I agree Fongolio. I guess it goes both ways. While I am pissed about the bonuses, a lot of people gave up a years pay to be reciprocated after 12 month period. Any way you slice it those folks got screwed over. The people running the company made the mistakes, just like the folks running GM and Chrysler. The top guys are making the decisions, the line workers are just doing what is told to them. Guess who is going to get punished at GM and Chrysler...the line guys, while the leaders get to walk away.

It sucks, and I am all about the little guy. Sure the guy I pointed out made 700+ thousand dollars. But everyone in the government agreed to that salary.

treitz3

It's just like tipping a rapist. Or so the video said.......

DarqueKnight

Hobbyguy wrote: »

Nobody is worth the kind of money these executives are making.

Top executives are hired to create wealth, often in the billions of dollars. If your job depended on how many billions of dollars you brought to the corporation in a year, what would you consider to be fair compensation?

People make much of the seemingly exorbitant severance packages that disgraced or under performing executives get. These "golden parachutes" are, by necessity, negotiated up front. Otherwise, it would be difficult to get qualified people to accept the professional and personal risks that come with these jobs, the least of which is no job security. Also, a top executive's business results are often influenced by factors beyond their control: the will of the corporate board they answer to, market conditions, existing adverse conditions when they took over, etc.

Hobbyguy wrote: »

When you consider how little the survivers of slain soldiers/police officers/fireman who lost their lives in the line of duty are reimbursed.

The job responsibilities of soldiers, police officers, firemen and other public service type jobs are not analogous to private business executive type jobs. People are hired for the former to provide a service to the public, and, as has been stated previously, there are many people who are qualified and willing to do these jobs. People are hired for the latter in order to create wealth. The pool of truly qualified and willing people for these type jobs is very, very small. There are many people who are qualified and who would be selected for the top jobs at their companies, but they will flat out tell you they don't want the exponentially higher levels of stress, responsibility and negative impact on their personal lives.

Hobbyguy

My wife and I save lives everday and we prevent people from dying in agony. These life and death decisions are more stressful than mere money. Doctors are getting paid less and less while executives are getting paid more and more and the public is not even aware. If money is what pulls in talent just think about what talent is going into medical school these days. If you think medicine is expensive now just wait when it is free...

DarqueKnight

I assume you are similarly outraged at the tens of millions of dollars that some professional athletes get just for throwing, catching, hitting or running with a ball?

nooshinjohn

I for one am happy they get retention bonuses. Anal retention bonuses are a must... can you imagine just how bad the stench would be if they lost their incentives to keep all that B.S. to themselves...

Hobbyguy

Outraged is not the word...Concerned is what I am.
Great Britain is an excellent example of where the US is headed. They used to be a world power....full of industry and products. Then slowly they became "wealth builders" and consultants. Now look at them, took them forever to somewhat recover. United states is rewarding entertainment and "wealth builders".
I guess it is true....all roads lead to Rome.

tonyb

DarqueKnight wrote: »

I assume you are similarly outraged at the tens of millions of dollars that some professional athletes get just for throwing, catching, hitting or running with a ball?

You see where this is going don't ya? Create public outrage over everything that seems excessive,to make it easier to pass policies that will even the playing field or spread the wealth.Heard some crap the other day about University sports programs,they get tax payer monies and pay a football coach millions.A football coach is going to make more than a CEO of a multi-billion dollar corp?These are the kind of questions they want talked about to push wage controls.They want to create a bad guy,other than themselves,then they will come to the rescue.I hate this game playing crap and wish they could just deal with the problem head on.

DarqueKnight

tonyb wrote: »

Heard some crap the other day about University sports programs,they get tax payer monies and pay a football coach millions.A football coach is going to make more than a CEO of a multi-billion dollar corp?

A lot of outrage would be prevented if the public were made aware of the dollar amounts these multi-million dollar salaried individuals were responsible for bringing in and managing.

The football programs at many, if not most, medium to large size universities are lucrative profit centers. A moderately successful football coach at a major university is responsible for overseeing an atletic program that brings tens of millions of dollars in revenue to the university (ticket sales, merchandising rights, broadcasting rights, etc.). The coach, through his coaching strategies, the selection of players, selection of coaching staff, and negotiating skills, has a direct influence on the amount of revenue the football program earns.

In the case of football coaches, the salary amount publicly announced contains a large percentage of incentive pay that will only be paid if the team wins a certain amount of games and if the team advances to a certain level in the championship playoffs.

During the 2006-2007 season, the football program at Louisiana State University brought in 48 million dollars in revenue. The program cost 16 million dollars to run. Some questions to consider:

1. If you spend 16 million and earn 32 million over that, isn't this an exceptional rate of return? What corporate CEO brings any anywhere near that rate of return?

2. If you were asked to manage a business with 16 million dollars in costs and expected revenues in the 20 to 30 million dollar range, what would you consider to be fair compensation?


During the 2006-2007 football season, LSU football coach Les Miles brought in 48 million dollars (over program costs of 16 million dollars) and a national championship. He was paid 3.5 million dollars. Was this out of line?

When you consider that many corporate CEO's earn bonuses of 10 million dollars or more for producing a rate of return of less than 5% and in some cases just for stopping loss trends and breaking even, Les Miles' mere 3.5 million dollar payout for a 200% rate of return seems somewhat unfair....even cheap.

DarqueKnight

Hobbyguy wrote: »

My wife and I save lives everday and we prevent people from dying in agony. These life and death decisions are more stressful than mere money.

It is two different types of stress actually. The stress that comes with empathizing with the suffering of another human being is different from the stress of putting your job, your professional reputation and salary, on the line with every decision you make.

As long as a health care professional does not do anything negligent to cause the injury or death of a patient, their jobs are never at risk. I guarantee that health care professionals would be introduced to a new world of stress if their pay and future employment depended on patient recovery and survival rates, regardless of how well they did their jobs.

A CEO can do everything humanly right, and still, if his revenue numbers are not "right" at the end of the year, he can be summarily dismissed.

Hobbyguy

It is amazing how little you know about our profession but this is my point; the public is igorant with what is going on in medicine. In my lifetime I will be sued many times. Every lawsuit raises my malpractice...not by a little but by alot and this is forever. So suddenly part of my future earnings are gone. Negligence has nothing to do with many malpractice cases and many times we can not fight back because laywers tell us that it is cheaper to settle. This is not stressful? What do you think a lawsuit does to ones reputation? Ask your doctor how many times they have been sued. Then there is the little thing called board certification....every 10 years. The failure rate is about 30%...no pass no practice.

Empathy for patients is the easy part. Do you have any clue how much medical data that must be assimilated weekly? I read 8 journals a month and this is just on the upper extremity...we then have to sift through which ones are valid and which ones are not.
William Mcguire knew that being a physician was extremely difficult and got out and went into administration and eventually the CEO of United Health Care. Did he ever go back into medicine...which is more stressful? I know of many examples of physicians leaving to eventually become CEOs. Tell me which CEOs leave to go into medicine...
And what has William actually done? I can't tell you how many times I was paid 15% or less than my billing because that is what United health care said that is what I was getting. You can be sure that is what other insurance companies started to do. This is how United health care made so much money initially...they cheated private practice physicians. Look around you will see fewer and fewer private practice physicians. In total health care dollars all of the physicians in the united states take 6%. Insurance takes 40%. Now that there are fewer private practice mds to cheat UNH is not doing very well.
As far as stress you obviously have never had to watch as the necrotizing fasciitis was racing from the hand to the elbow, amputation too low will lead to death and too high leads to permanent loss of function. You have never repaired a brachial artery that has to be repaired within 3 hours or muscle death occurs. You have never run a code. You have never been up all night fixing open fractures and then see 50 patients the next day. If health care professionals future employment depended on survival and patient recovery then we would do better than most. The success rate for most of my surgeries is 90-95% good-excellent. What other profession can boast this? I could go on and on...

I would gladly trade a month with any CEO...lets see who gets in trouble first.

Hobbyguy

Also if a ceo makes a mistake he could lose his job.If we make a mistake we could lose a life or cause suffering until death. How is this less stressful?

DarqueKnight

Hobbyguy wrote: »

Also if a ceo makes a mistake he could lose his job.If we make a mistake we could lose a life or cause suffering until death. How is this less stressful?

I did not say, or even imply, that health care professionals do not deal with stress. I'm sure the average police officer working in a high crime area has a stessful work life also. What I said was:

DarqueKnight wrote: »

It is two different types of stress actually.

Hobbyguy wrote: »

Also if a ceo makes a mistake he could lose his job.

In addition to him or her losing their job:

1. Thousands or tens of thousands of other people could lose their jobs.

2. Thousands or tens of thousands of other people could lose their retirement pensions.

3. Thousands or tens of thousands of other people could lose there health care coverage...and some might suffer serious health consequences, even leading to death.

4. The failure of a firm that is an industry leader could have far reaching effects throughout that industry, so that items 1-3 might be induced at other firms in the industry.

And so on and so forth.

I am not personally familiar with William McGuire's story. However, if he went into corporate administration because he was seeking a lower level of stress, he was deluded.

Hobbyguy

ok now i know that you are baiting me.
These are things that a good ceo is concerned with. I agree that there may be some that are concerned with the above, but I would venture that most ceo could care less about those under them. Why else would they extract so much capital from a company instead of putting it into benefits that could help its employees? CEOs always seem to have a parachute but what about its employees? What does a ceo do to help its employees when the company is having a hard time ...oh yeah they get fired.

jdhdiggs

He's not baiting you, you just seem to have a persecution complex, or some god complex where no one should ever make more than people in your profession. All he is pointing out is that there is a justification for a lot of these salaries.

Top CEO's schooling is on par or exceeds most lawyers, but does fall short of MD's. They do typically work 80+ hrs a week, read multiple journals, and many other items that people don't see. As DK said, a CEO's decisions can destroy communities and lives overnight, so no stress for them...

Anyway, in my book, if you bring in more money to the company than it costs to keep you and that delta is greater than the companies CoC and/or RoE, then you deserve every penny.

If your pissed that MD's don't get more money, work on getting MD's more money- don't try and tear other people down because they are doing something different and making more than you.

Hobbyguy

And that is why I am leaving medicine...