The CBC recently announced that they would reduce executive bonuses by 50% next year, to which the Canadian Media Guild members, who face massive layoffs and wage rollbacks in the coming year, replied, “The CBC execs get bonuses?!”
Bonus outrage is officially all the rage these days. Nonetheless, the whole blowup over the AIG bonus debacle–which set this ball rolling in the first place–has its roots in a simple semantic problem. Most people conceive of a bonus as something extra. Business executives conceive of bonuses as a natural extension of their salary, subject to the same contractual obligations and expectations.
When the team of executives hired to fix AIG with the help of $170 billion from the government agreed to work for a salary of $1, it gave the impression to the public that they were taking a huge hit for the good of the world’s financial system. In reality, as people found out a few days ago, they actually agreed to work for a salary of a dollar, plus a million dollar “bonus” at the end of the year, which was just as contractual an obligation as their salary was. The trouble is, when the people who naively conceive of a bonus as being something extra heard that these AIG execs were getting million dollar bonuses, they got outraged, because there was obviously no fiscal success on the part of the company that would justify the distribution of an extra million dollars to each executive at the end of the year.
Of course, the bonus wasn’t extra at all. The executives signed a contract that stipulated they would receive an effective salary of $1 ooo oo1. When Liddy got pressured by Congress to allow clawbacks of %90 of that amount, the execs saw it, rightly, as a clawback of %90 of their salary for that year.
Obviously, in hindsight, calling contractually obligated yearly payments to corporate executives “bonuses” is horribly misleading and disingenuous, especially coupled with the announcement that the AIG bailout team would work for $1 salaries. This was an obvious and flagrant attempt to mislead the public, and it has been ever since the concept of contractual bonuses became the norm in executive retention. Nonetheless, it would be nice if corporate execs just played it straight and called the bonuses “salary,” because at least then we would all be talking about the same thing during discussions of exorbitant executive pay rates.