The Case For Corporate Bonuses
I’m not necessarily in favor of big executive bonuses at bailed-out corporations. But I feel compelled to point out a big flaw in the highly popular anti-bonus argument that’s making the rounds. That argument goes like this:
These executives are saying, “We were promised these bonuses when we were hired here. We didn’t do anything wrong, so why should we be penalized?” Well, if the government hadn’t bailed out your company, that company wouldn’t have been able to pay these bonuses. You wouldn’t have gotten that bonus whether they promised it to you or not, if they had gone into bankruptcy. So if the government’s bailing-out your company, that company has no business paying big executive bonuses, regardless of what was promised.
The flaw in this argument is simple: A company goes into bankruptcy when it’s unable to meet its financial obligations. One of those obligations is to pay its employees what they contracted for, including executive bonuses. If the government gives the company a big bail-out payment to prevent bankruptcy, then yes, that money should go to, among other things, promised executive bonuses, because that’s one of the many financial obligations that the company couldn’t meet, and needed a bail-out to cover.
If that argument disgusts you, then maybe you should be arguing against a bail-out altogether. Let the company go bankrupt — if it can’t meet its financial obligations (to its executives and many other parties), then maybe it needs to go bankrupt.
Giving a company a bail-out, then arbitrarily dictating which promises will be met and which won’t, is really a disguised, partial, government take-over of the company. There’s a much better, less arbitrary, and far less costly way for the government to partially take over a failing company. A way carefully regulated by due process and openness.
It’s called bankruptcy court.
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