Why The Execs Are Still Getting Bonuses
One easy and obvious way for companies to save money is to cut executive compensation, but why doesn’t it happen?
I’ll look to one of my classroom experiences to answer this one. On my first day of teaching Principles of Corporate Finance, I had my students participate in a role play exercise about a major airline in crisis.
I broke the students up into six groups, each representing a stakeholder in a major airline company: pilots, flight attendants, mechanics, executives, customers and stockholders. There are more stakeholders, but I wanted to keep it pretty simple.
Each group had to explain (through one representative) their position on options to increase profitability. All of the options came down to raising revenues or cutting costs, but I provided them with options such as raising airfares and fees for travellers, cutting salaries and benefits for pilots, flight attendants and mechanics, cutting compensation for everyone, cutting dividends, and finally cutting the multi-million dollar bonuses collected by executives.
My findings: After four sections, the groups were unable to agree unanimously on any changes. The change with the most support was to cut executive compensation.
The argument from all of the workers outside of the executive suite was pretty consistent, including ”when times get rough we get punished and they keep on getting their millions…they don’t know what it is like out here doing the real work…what do they get so much money for anyway?”
My answers: true, probably true and I have no clue.
Executive talent is valuable. Companies need good leaders and a good leader can go a long way, but in terms of compensation where do we draw the line?
In each of my classes, the groups representing the executives said the same thing. In a nutshell, if we’re losing a billion dollars a year, taking away a million dollar bonus from me won’t help as much as cutting the wages and benefits of all of you.
By the numbers they are right, but the whole thing is just wrong. I started this exercise in 2003, now companies are losing billions per quarter and many executives are still padding their pockets.
A few leaders are asking questions, check out this interview with one congressman pushing for legislative intervention.
Tags: airline ceo compensation, ceo compensation, ceo compensation issues, ceo pay, ceo salaries, ceos get paid too much, executive bonus compensation, executive bonus pay, executive bonusesRelated Stories
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