Tuesday, July 13, 2010
Bonuses - This looks like a good idea
Now with the European Union likely to legislate to specify how bonuses will be paid, for instance a large benefit is only able to have a 20% cash bonus... I am sure the affected people are even now re-structuring their pay to counteract this... perhaps by increasing the fixed component of the pay package...
In the United States it seems is not going to legislate, but issue guidelines... which I am sure that they will be bent, sidestepped and outright broken as a result.
However staying in the USA for a moment, something new has come to my attention.... a new basis for paying bonuses... as we know once of the companies, formerly a major casualty of the sub-prime fiasco and their own corporate greed at that time, has come up with what I believe is a solution... that Compensation for those who receive bonuses should be tied more closely to corporate debt rather than equity... what a resounding good idea, as well as responsible one... how unlike a Corporation.!
I am speaking here of AIG (American International Group) who announced that it will link incentive pay to the value of their insurer's bonds.
This makes cowboy activities less likely, especially as a short term tactical strategy, and I hope this will turn the train around and move it back to responsibility not only to the company, the industry but also the shareholders - but also to the Corporate world in general. I believe that these types of incentives protect the interest of bondholders and the ultimate value of the company... this will come to be a good strategy especially in uncertain times, and more particularly when a company's solvency is in question.
Perhaps the rest of the world, particularly The European Union as well as all markets affected by this disease should take notice