Sunday, March 15, 2009


Here's a seemingly straightforward question for you. Assuming that it is legal and consistent with company policy for a CEO to be given a sizable bonus, is it right for the CEO to receive a bonus in a year when the company hasn't meet the predetermined expectations for earnings, profits and overall company performance? Does it matter that the shortfall may be due to overall economic conditions over which the CEO has no control? Does it matter if bonuses are typically part of the standard compensation for the job? Does it matter if executives in comparable positions at other companies are receiving comparable bonuses?

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Jeffrey L. Seglin, author of The Right Thing: Conscience, Profit and Personal Responsibility in Today's Business (Smith Kerr, 2006), is an associate professor at Emerson College in Boston, where he teaches writing and ethics. He is also the administrator of The Right Thing, a Web log focused on ethical issues.

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Anonymous said...

Here is the definition of Bonus from a British site which may indicate some cultural differences(one of many definitions):"Bonus -
a payment in addition to normal pay. Often related to performance and typically paid as a one-off lump sum that is not consolidated into normal pay and is not pensionable. Often paid at management discretion and can vary from year to year."

So the clue here is how much is in the worker's contract? And the bonus is not included in pension calculations. Some definitions imply that a bonus is a pay-forward for inducing the worker to perform better, rather than a reward for having done so.

However, in these economic times, the acceptance of a bonus that was not earned by performance above and beyond the call of duty to obtain an improved result is a moral issue rather than an ethical one.

Anonymous said...

It seems to me that the CEO should get a bonus only if his or her performance exceeded reasonable expectations established at the beginning of the performance period. But what happens if the CEO took risks that predictably resulted in short-term losses for the company (as it retooled, say), but brought greater profits one or more years down the line? Well, the board shouldn’t make him or her give back some well-earned salary or stock holdings, but the CEO shouldn’t receive a bonus until the company prospers beyond expectations. Next year’s basic salary could be bumped up or down in accordance with the CEO’s performance, but hefty bonuses should be tied to impressive results.

It’s part of a CEO’s job to evaluate the risks of how the economy or other factors (natural disasters, internal fraud, terrorist attacks, the emergence of a new competitive product, for example) might affect operations. By means of insurance, reserves and “Plan B’s,” the CEO must deal with adversity when it comes. Even if he/she has planned wisely and worked 80 hour weeks, if the company has done poorly because of misfortune or planned losses, I would say the top dog is not entitled to a bonus – maybe a raise next year, but not a bonus at the end of the current one.

So, I think the answer to your “seemingly straightforward question” with a host of variables is “No.” And I bet a whole lot of out-of-work people would agree.

Anonymous said...

Of course this question is not straightforward. Ethically, the ratio between the compensation of these CEOS and that of the average worker (you know, those poor souls, all of whom are in debt, who spend their days making these CEOS rich!)is unconscionable and has been for decades.

That ratio should be regulated. Since it is not, thus far, regulated by moral or ethical standards, nor in fact by "capitalism" (See Enron, Countrywide, et al.) it seems it needs to be regulated by law.

Greed is NOT "good. My, my--the emperor has no clothes!

These current bonuses should not be paid at all. Future bonuses should be paid on performance and ALL employees should share in profitablity.

When we we all notice we are all in this together?

Anonymous said...

CEOs sit on the boards of other CEOs. All board members vote on compensation for CEOs. All have a vested interested in keeping compensation for the top at ridiculous levels, and all board members work to find ways to insure the "earning" of bonuses by creative means that have little to do with successfully running a company, and nothing at all to do with performance.

Fox, meet henhouse!

Anonymous said...

Who would be making these regulations?
The same government that runs Social Security? The same government that runs the U.S.Post Office? Heaven help us.
Many CEO's risked their own savings to start a company,thereby creating employment opportunities for many.
Before bailouts, if the company failed, the CEO suffered the loss,as well as the employees. Unless he was fortunate enough to recoup some of his investment before going into chapter 11.
I'm not suggesting that all CEO's have/had ethics.
On the other hand,
how many of the law makers in DC have had experience running a business or large corporations, which would qualify them to judge what the CEO's are/were doing wrong?
I daresay that there are more than a few of these same politicians that are also lacking in ethics.
It would seem to me that those running our government have plenty on their plates, with the constitutionally mandates they already have ,without meddling in private enterprise.
I never thought I'd see the day when the president of the U.S. was able to fire the head of a private company.

Anonymous said...

Oh,and this is also the same government that forced banks to lend money and give mortgages to people who could not afford to repay.