Quote:
Originally Posted by Dan D
What I don't understand is why are bonuses paid when the company does not realise any profit or even worse when the company would have gone bankrupt without government help.
From what do you want to pay bonuses if there is no profit?
And imo it makes sense that companies that have received bail out money should not pay bonuses to their managers.
"No profit, no bonus" should have been written into these bonus contracts, imo.
But I am no expert, so please enlighten me.
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Most of America's crappier-run corporations do not pay executive bonuses on net profit. One popular alternative is whether or not they beat Wall Street's quarterly predictions. Of course, this leads to some questionable business strategies, such as unwarranted mergers and accquisitions, excessive downsizing, and book-cooking. It is no coincidence that most executive compensation is in the form of stock options.
Of course, there are other methods, but compensation standards are often set by the board, so the fox is guarding the henhouse.
Nothing wrong with that, though. Such companies will eventually run themselves into the ground, anyway. The problem comes in the form of competition-stifling regulation and taxes, and in this case, bailouts.
A bit OT, but consider this;
All business is driven by the motivation for profit. That's the incentive. In a healthy free-market economy, there is only one way to profit, and that is to be competitive. In an increasingly socialist economy like ours, that incentive is diluted. The state hinders the creation of new ventures and solidifies the position of established companies. Think about it. It is very difficult for a new venture capitalist to amass the capital required to meet all regulatory and legal standards, and often they are made to wait months or years for approval. All that time and capital is effectively wasted. That's part of what makes so many small businesses fail. They're out of business before they even start.
It's no wonder that the most prominent lobbyists for regulation of commerce and industry are commerce and industry. They're trying to shut out the competition.
In the case of the bailouts, we're just skipping the process of established business worming its' way into legislated superiority. The fox guards the fox who guards the henhouse, so to speak. It creates an automatic monopoly. Sure, there may be many financial institutions, but will all be run by the government. You'll understand if I'm not enthralled at that prospect. Unlike the free market, the federal government does everything poorly, becuase it has no competition. And even worse, you have less choice in the matter.
What you are seeing now is what happens when business and the state have common interests. These kinds of companies are allowed to survive, and even helped with taxpayer funds. The results are quite predictable.
Of course, this has been going on for decades now, but not since the 30's has the state intervened on such a grand scale.