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Exec Comp Restrictions Get Tougher

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Re: Exec Comp Restrictions Get Tougher [#permalink] New post 20 Feb 2009, 09:17
Toubab wrote:
Uh... thanks? Yes, I foresee a lot of my career in the non-profit sector (though not exclusively), particularly in international development (where I am now). This career is rewarding to me on many levels - financially, personally, etc. What I do actually makes others' lives better in measurable ways - and the travel is pretty cool too. I'll never make as much as a banker, but I'll work much more reasonable hours and, I think, have a richer working experience. And my MBA will still pay for itself in the long run - it'll just take a little longer than for folks in more lucrative fields.


Toubab, I commend you on your dedication to helping those who are less fortunate. I too feel that we each have an individual reponsibility to give back to the global society of which we are part. For those that took part in DAK (Day at Kellogg) earlier this month, we had the chance to hear the Dean, Depak Jain, talk about the furture direction of Kellogg. The key take away was the notion of "success to significance". I've tried to find this speach online (I know that it was videoed) but have been unsuccessful thus far.

Basically, the jist is, as prospective leaders in business, we all strive to be individually successful. This again is human nature. We do well, we build a nesk egg, we provide for our families, and we should be happy. Going from success to significance means, that once we have made ourselves successful, we are in a much better place to make a significant contribution to the world. Its a lot easier to make substancial philanthropic contributions when your not worried about how you are going to pay for your kids to go to college or for your mortgage.

Look at the Bill and Malinda Gates foundation. Do you really think that organization would be able to do as much good as it does operating out of a couple offices in a business park somewhere working off a $2 million budget? Of course not.

I am a firm believing in the old addage "with much success comes much responsibility". Even from a tax standpoint, I don't entirely mind being in a higher tax bracket, because I feel that I have more to give and I should (though I don't always agree on how its spent). I think that everyone has an obligation to give back in the ways that they can, I just also happen to think that if you are independently wealthy, you are in a much better position to do so.
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Re: Exec Comp Restrictions Get Tougher [#permalink] New post 20 Feb 2009, 09:51
Nevermind my comment of not posting anymore in this thread.

Here is where we are different. I believe NO ONE should have a limit on the amount of money they can earn. There should never be a cap on anyone's earnings. They should be able to earn as much as someone or something is willing to pay for their services. It's not within the ideals of this country to punish someone for being too successful.

And don't even get me started on taxes. If you want to give more than by all means do so, and if you want to live a life of reverse tithe like Rick Warren, then I applaud you. But don't use the rule of law to tell me how much I should give. Don't force people to succumb to your definition of what is the right amount to pay in taxes. If you want to give all of your earnings to charity, great, but don't support higher taxes on anyone else so that they give more away because you feel that is the right thing to do. Who are you to decide what's right for someone else? Don't worry about how much other people are paying in taxes, or whether they are paying their fair share (whatever that means). Worry about if you are doing everything you can to help others, not whether other people are doing enough. Be concerned with what you can control and that is you.
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Re: Exec Comp Restrictions Get Tougher [#permalink] New post 20 Feb 2009, 09:58
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JB, taxes make a government, and thus society, run. That's why we care that people pay their fair share.

Domitri, I think you and I are basically on the same page. We're in different fields because different things interest us, at the end of the day. I think that finance and consulting are dreadfully boring, for example, and I'm not willing to trade the lifestyle that's required to become super wealthy working in those fields for the big returns. Others are. Hey, live and let live.

I would point out that envisioning helping others as some more distant goal, only achievable once you've already made your fortune, is a bit misleading for two reasons. First, it depends on this notion of when you have "enough" to start giving so generously philanthropically. Your idea of what's "enough" will probably be quite different in ten or twenty or thirty years, once you've become accustomed to a very different lifestyle than you have now. You have plenty of millionaires these days who don't see themselves as "rich." (Like John McCain, for example.) Most people would think that's preposterous, but still... and I think that as you climb the income chain, there's always going to be new stuff you can do with your money to "improve" your lifestyle in such a way that you won't quite have "enough" yet.

Secondly, helping others is a daily thing. It's a way you should orient your ethical compass, which affects every decision you make - personally, professionally and financially. And I don't think it depends at all on what field you work in. An I-banker or consultant who buys local and organic food, has an energy-efficient lifestyle and tries to incorporate social and ethical values in their business rather than solely profitmaking ones can have an enormous impact, and one we really can't do without.

And naturally, there's a division of labor. Bill and Melinda Gates couldn't make their organization function without trained and experienced professionals in international development (i.e. me) to help them do it. Thus, why I am now assisting on a Gates Foundation project in India called Vistaar. So see, it takes all kinds. :)
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Re: Exec Comp Restrictions Get Tougher [#permalink] New post 20 Feb 2009, 10:08
Fortunately the I-Bankers and Consultants that flood B-schools every year don't have these self-righteous attitudes and are pretty cool people to hang out with. Good luck making friends in B-School, Toubab.
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Re: Exec Comp Restrictions Get Tougher [#permalink] New post 20 Feb 2009, 10:19
jb32 wrote:
And don't even get me started on taxes. If you want to give more than by all means do so, and if you want to live a life of reverse tithe like Rick Warren, then I applaud you. But don't use the rule of law to tell me how much I should give.


Dude, I don't think I said anything about how much YOU should be paying in taxes. My comment about taxes was directed only at myself. And about your comment on capping pay. I too agree that the government has no right meddling in the business of corporations....unless the government has significantly invested in that company to bail them out. If JPM was "forced" to take the bail out money and doesn't need it, then there SHOULD be a mechanism to give it back. Personally, I'm not entirely convinced that some politicians in Washington don't want them NOT to be able to give it back, just so they can continue to use Wall Street as a smoke screen to cover all of the hypocracy and BS that occurs in DC everyday.

Toubab wrote:
I would point out that envisioning helping others as some more distant goal, only achievable once you've already made your fortune, is a bit misleading.


Agree 100% and perhaps what I meant to say and what I actually said, were not exactly the same. I'm not advocating waiting to give back until after you've got your fifth home in the Riviera and a private plane to take you there. Clearly, we do have a responsibility to give when and were we can. For those that do see $$ as an incentive (I know I do), no one should hold that against you (here I completely agree with jb) and also, no one should tell you that you "have" to give back. The point I was trying to make is that it becomes exponentially easier to give something away, when its not going to make or break you. Clearly, there are those in the world that would be willing to give away their last meal, I just don't happen to be one of those people.
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Re: Exec Comp Restrictions Get Tougher [#permalink] New post 20 Feb 2009, 10:23
JayPX1 wrote:
Fortunately the I-Bankers and Consultants that flood B-schools every year don't have these self-righteous attitudes and are pretty cool people to hang out with. Good luck making friends in B-School, Toubab.


Just because someone has a different perspective doesn't make them self-righteous.
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Re: Exec Comp Restrictions Get Tougher [#permalink] New post 20 Feb 2009, 11:01
I think, it would make more sense to give more when you're financial secure without having to worry about paying for the mortgage, for the children's education and other basic necessities. And to that, you would need to accumulate a certain amount of wealth. If a person's notion of "enough" may change, even more so that he should achieve his financial goals before focusing on assisting others. It did take a while for Bill Gates to set up the foundation didn't it?

While helping others is an ethical decision that varies from person to person, I also believe that a person of integrity will be committed to doing what his job is, which is firstly, to generate profit for his organization. How can a person compromise that responsibility and say that while I could have made more profit, I didn't do it because I wanted to "help" others?

Of course, I understand that we're all socially aware and are looking for sustainable business that gives back to the community because ultimately it's more profitable etc. In that case, by all means, but only because it makes more profits.

I've always wondered why people in non-profits should believe that they should be paid less simply because "they're socially responsible etc". Now, my personal goals are to start a non-profit organization related to education, and honestly? I don't see paying myself or my employees anything less than private sector pay. Why not? It's interesting to note that the Singaporean government pays government servants 10% - 15% above private sector comp. Singapore is also one of the least corrupted countries as well as more if not most efficient country in the whole world.

If I'm not wrong, there's a lecturer at a certain ultra elite b/school who talks about changing the mindset that non-profit is not a management style, but instead, to that it's a tax bracket. That non-profits should be run like a for-profit organization.

In the end, deciding to be socially responsible or taking a job for less pay just so you can help build stuff in Africa or for any reason, is a personal choice. We shouldn't penalize or condemn others that are in pursuit of profit, for we never know what their ultimate aim is.

Last edited by adcxaway on 20 Feb 2009, 11:29, edited 1 time in total.
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Re: Exec Comp Restrictions Get Tougher [#permalink] New post 20 Feb 2009, 11:07
Sorry...

I tried to add some value to this thread with some of my contribution but oh man....


This thread gives me a headache.....I tried but I just CAN'T read all the posts from the beginning to the end.

I give up.....

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Re: Exec Comp Restrictions Get Tougher [#permalink] New post 20 Feb 2009, 11:37
adcxaway wrote:
How can a person compromise that responsibility and say that while I could have made more profit, I didn't do it because I wanted to "help" others?


Simple. If a firm is serious in saying that it is socially conscious, for example, it can tolerate earning less profit in exchange for greater value of other sorts - for example, doing something valuable for the community. There's no moral law out there saying that all firms must do whatever is necessary to earn more profit. There are several companies organized such that earning profit and being financially solvent is one goal, along with achieving social and environmental goals as well.

Quote:
Now, my personal goals are to start a non-profit organization related to education, and honestly? I don't see paying myself or my employees anything less than private sector pay. Why not?


I'm sure plenty of folks would love that. :lol: The problem is funding, not anyone's desire to make less money. We all want to make more money. But when you're engaged in an activity that inherently does not return to you any profit, you will find it very difficult to both achieve your deliverables in your area of interest and pay private-sector-level salaries. I'm sure there are some exceptions out there, but that's generally how it works.

Ever read Mohammad Yunus's latest book on social capitalism? It's basically his blueprint for a non-profit that operates like a for-profit firm in every way except that it doesn't pay dividends and returns surplus value back into the organization or its goals. Very exciting stuff.
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Re: Exec Comp Restrictions Get Tougher [#permalink] New post 20 Feb 2009, 12:03
Toubab wrote:
adcxaway wrote:
How can a person compromise that responsibility and say that while I could have made more profit, I didn't do it because I wanted to "help" others?


Simple. If a firm is serious in saying that it is socially conscious, for example, it can tolerate earning less profit in exchange for greater value of other sorts - for example, doing something valuable for the community. There's no moral law out there saying that all firms must do whatever is necessary to earn more profit. There are several companies organized such that earning profit and being financially solvent is one goal, along with achieving social and environmental goals as well.


So, in an extreme situation, would they rather be financially solvent with no social/environmental goals achieved or would they rather achieve social/environmental goals but be bankrupt? There's not moral law, but until shareholders start telling the company that they're not really that interested in getting a higher return for their investment, I think companies are going to stick with maximizing shareholder's value. In fact, I would think that a company that maximizes shareholder's value probably benefits the community more by passing them more resources to build the community etc. I for one, would want my investment to give the the highest possible return. But I'm curious, which are the companies that are organized around such goals and how successful are they so far in terms of profitability?

Toubab wrote:
I'm sure plenty of folks would love that. The problem is funding, not anyone's desire to make less money. We all want to make more money.


Then go make that money. I would think that if I had $500 million, I could probably impact a lot more lives than a person with $100k.... I notice that people in non-profits (at least those that I know) seemed to be quite detached from reality at times esp. when it comes to money and the potential good that it can have....


Anyhow, I've think we've digressed from the original topic at hand.

So, I think it's disgusting that the govt. is capping the pay, but maybe it's understandable because the govt. is passing them some money. So hopefully it is a temporary situation, it would be horrible if it were permanent. I feel that the only people/person who has the right to say how much you're paid is the person who owns the company. And as long as the shareholders don't vote to restrict pay, then others don't have a say. People should be allowed to earn as much as they can...
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Re: Exec Comp Restrictions Get Tougher [#permalink] New post 20 Feb 2009, 12:07
Quote:
Simple. If a firm is serious in saying that it is socially conscious, for example, it can tolerate earning less profit in exchange for greater value of other sorts - for example, doing something valuable for the community.


What exactly a "socially conscious business"? That seems like a very subjective term. It's very similar to the term "social justice". I have a friend who is a staunch Catholic who goes to the yearly pro-life rally in DC every year to fight for "social justice".

Would you agree that making abortion illegal again is "social justice"? I would guess not.

So what exactly defines a "socially conscious business"? I think its a world used by groups to describe businesses that support their political agenda (whatever that is).

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Re: Exec Comp Restrictions Get Tougher [#permalink] New post 20 Feb 2009, 12:43
refurb wrote:
So what exactly defines a "socially conscious business"? I think its a world used by groups to describe businesses that support their political agenda (whatever that is).


http://en.wikipedia.org/wiki/Social_business

Whenever you talk about social or environmental good, you'll run into political differences. Some folks think that environmental degradation in the name of economic efficiency (ex. strip mining or dumping pollutants into rivers) is fine, because it returns value to shareholders. Others have no problem mistreating workers in a poor country, colluding to keep wages low, or conspiring to corrupt local officials to turn a blind eye to legal offenses, in the name of profit. A lot of actions like these are not technically "illegal," but they're clearly unethical.

Yunus mentions in his book that a large and growing number of consumers are willing to pay premiums for goods that are produced in a fashion that isn't always the most efficient - organic/local produce, for example, or fair-traded commodities, or low-environmental-impact lumber or minerals. Obviously, growing the demand for these kinds of goods is crucial to driving overall social change.

I agree that a lot of folks working in non-profits don't always have great management skills. That's one reason I'm getting my MBA - so that I can bring better management to bear on a sector that can really use it. But I'd add that a lot of folks in the for-profit sector don't always understand how, for example, creating social change works. They think that "making a difference" means writing a check. But it's not all about money. Like I said earlier - the most important part of making the world a better place is making every person understand that they have an important role to play.
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Re: Exec Comp Restrictions Get Tougher [#permalink] New post 20 Feb 2009, 16:11
Toubab wrote:
Like I said earlier - the most important part of making the world a better place is making every person understand that they have an important role to play.


At the risk of turning this thread into a philosophical discussion....

What makes the world a better place?

I don't think you'll ever find consensus concerning the definition of that term.

Libertarians would say it is the realization that each person is an individual that has the freedom to decide the direction of his or her own life.

Conservatives would describe it as the realization that every individual has the responsibility to take care of themselves.

Liberals would describe it as individuals coming together for the common good.

Communists would describe it as the complete dissolution of individual will for the common good.

Which one is right?

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Re: Exec Comp Restrictions Get Tougher [#permalink] New post 21 Feb 2009, 04:20
I also agree there shouldn't be a cap on compensation, but I do believe that compensation should be less bonus orientated. Let's get down to the bare facts. Companies prefer to pay large bonuses and smaller bases because it costs them less. Less in benefits, because its usually based on a % of base compensation, to the point where some employees are given a guaranteed bonus, hence the reason why some banks are saying they are contractually obliged to pay these bonuses.

If any rule should be applied, it should be applied based on the bonus structure and the objectives that the bonus is trying to achieve. Short-term financial reward can be very counterproductive. For example, consider the scenario of a retiring CEO whose bonus is related to profit. In the year before his retirement, he can boost his bonus by cutting R&D causing long term damage to the company but expanding profit for the year, boosting his bonus. The annual report will show a massive boost in profits and he will be applauded, but the next CEO will suffer. Likewise a regional manager who is looking to switch jobs, he can boost profits by cutting other areas to take his bonus and then leave.

Short term reward should only constitute a small part of bonus, long term reward systems are much better because it forces employees to look at the sustainability of their work, and also ties them into the company and more into the interests of the company due to the long term nature of the company. It's the basis of how Japanese companies work, Panasonic have a 125 year business plan, cut down into shorter goals of 25 years!!! Part of this short term bonus compensation system is due to the culture within the banking industry, and this is the part that needs to change. Compensation systems needs to reward individuals based on a mixture of team based- long term incentives, some team based- short term incentives (i.e nearfield goals which help to accomplish the long term target), overall company performance (to create loyalty towards the company and comaraderie between different divisions) and individual performance towards the long/short term incentives.

Also in the grand scheme of things, I don't believe this 'loss of talent' argument holds water under the current situation.. There is nowhere for them to go, there is noone who will pay the levels of bonus that were achieved over the last 5 years, and when we come out of the other end of the tunnel, I believe there will be a fundamental change in culture within IB's.
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Re: Exec Comp Restrictions Get Tougher [#permalink] New post 21 Feb 2009, 10:53
togafoot wrote:
I also agree there shouldn't be a cap on compensation, but I do believe that compensation should be less bonus orientated. Let's get down to the bare facts. Companies prefer to pay large bonuses and smaller bases because it costs them less. Less in benefits, because its usually based on a % of base compensation, to the point where some employees are given a guaranteed bonus, hence the reason why some banks are saying they are contractually obliged to pay these bonuses.

If any rule should be applied, it should be applied based on the bonus structure and the objectives that the bonus is trying to achieve. Short-term financial reward can be very counterproductive. For example, consider the scenario of a retiring CEO whose bonus is related to profit. In the year before his retirement, he can boost his bonus by cutting R&D causing long term damage to the company but expanding profit for the year, boosting his bonus. The annual report will show a massive boost in profits and he will be applauded, but the next CEO will suffer. Likewise a regional manager who is looking to switch jobs, he can boost profits by cutting other areas to take his bonus and then leave.

Short term reward should only constitute a small part of bonus, long term reward systems are much better because it forces employees to look at the sustainability of their work, and also ties them into the company and more into the interests of the company due to the long term nature of the company. It's the basis of how Japanese companies work, Panasonic have a 125 year business plan, cut down into shorter goals of 25 years!!! Part of this short term bonus compensation system is due to the culture within the banking industry, and this is the part that needs to change. Compensation systems needs to reward individuals based on a mixture of team based- long term incentives, some team based- short term incentives (i.e nearfield goals which help to accomplish the long term target), overall company performance (to create loyalty towards the company and comaraderie between different divisions) and individual performance towards the long/short term incentives.

Also in the grand scheme of things, I don't believe this 'loss of talent' argument holds water under the current situation.. There is nowhere for them to go, there is noone who will pay the levels of bonus that were achieved over the last 5 years, and when we come out of the other end of the tunnel, I believe there will be a fundamental change in culture within IB's.


In a constantly changing world, where people switch jobs every 2-4 years and the average CEO is only around for 4-5 years, this is much easier said than done. It is not easy to predict the future, either.
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Re: Exec Comp Restrictions Get Tougher [#permalink] New post 22 Feb 2009, 21:18
http://www.forbes.com/2009/02/19/ceo-pa ... hodak.html

The $18 billion paid in bonuses last year is entirely defensible, and losses might have been worse had the banks withheld it.


I would be perfectly happy living in a world where the typical CEO made no more than, say, 30 times the pay of the average worker. I don't think anyone needs more than that to be happy or secure, or deserves more than that as an expression of their value to humanity. I'm also a compensation consultant that shareholders hire to get the best executives at the lowest prices. I don't pay more than I have to, but I often have to pay more than 30 times what the average worker makes. You do get what you pay for.

If we're bent on ridding Wall Street of those dreaded bonuses, banks will have to replace bonus opportunities with much higher fixed salaries than they now pay in order to remain competitive. In a horrible year like 2008, the banks replacing target bonuses with fully competitive salaries would have had far higher compensation expenses. We would have been spared the bold headlines about $18 billion worth of bonuses, but Wall Street's total compensation cost could easily have been another five or 10 billion more than that.

Most of what we call "bonuses" on Wall Street actually resembles commissions earned by a modestly salaried salesperson, albeit with a very high upside. No one familiar with how salespeople get paid would consider zero commissions in a bad year as a sensible outcome. Even if the salesperson sold only half what he sold last year, he still deserve some commission. That's where the "shameful" $18 billion in bonuses went--to traders whose books did not blow up, investment bankers who squeezed some fees from a desiccated market, and asset managers whose portfolios survived the carnage relatively intact.

AIG (nyse: AIG - news - people ) had over 100,000 employees. It was brought down by about 80 of them. When divided among all the eligible folks on Wall Street, that $18 billion worked out to about $110,000 per person, with some getting multi-million payouts while many others got relatively little.

I know it's hard for someone making $50,000 a year to imagine that anyone can be worth 10 or a hundred times that. But, they well might be. How do I know? Because if I don't pay them, someone else will. When an executive across the table tells me, "The guys down the street are offering $2 million a year," he's not bluffing. The experienced buyer of managerial talent can see the difference between a $500,000 executive and $2 million executive as surely as a home buyer can tell the difference between a half-million-dollar home and a $2 million home.

When we buy a $2 million home, we're on the hook for the whole price--the house doesn't have to prove its worth every time the mortgage payment is due. What works about Wall Street's bonus structure is it means I can offer my $2 million talent a fraction of that in salary, and make them earn the rest.

In the context of Wall Street pay, "bonus" is a bit of a misnomer. Most people think of "bonus" as something extra, for above-target performance. But rather than pay a competitive salary plus a modest target bonus, Wall Street has tended to offer its typical workers base salaries that might keep them in a small Manhattan apartment, then enable them earn a "competitive" level of pay only through additional compensation based on their production. Of course, they can earn well above competitive pay in good years, and often do, but that's not guaranteed.
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Re: Exec Comp Restrictions Get Tougher [#permalink] New post 23 Feb 2009, 07:40
adcxaway wrote:
Most of what we call "bonuses" on Wall Street actually resembles commissions earned by a modestly salaried salesperson, albeit with a very high upside. No one familiar with how salespeople get paid would consider zero commissions in a bad year as a sensible outcome. Even if the salesperson sold only half what he sold last year, he still deserve some commission. That's where the "shameful" $18 billion in bonuses went--to traders whose books did not blow up, investment bankers who squeezed some fees from a desiccated market, and asset managers whose portfolios survived the carnage relatively intact.


Exactly what I mentioned earlier and noone responded to. Toubab -- ever tried taking incentives away from sales people or putting them on a base salary? Let me know how that goes.
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Re: Exec Comp Restrictions Get Tougher [#permalink] New post 23 Feb 2009, 08:14
Yeah, I understand how the system works. Bonuses, commissions, whatever you want to call them -- incentivizing salespeople to work hard (look, I'm using B-school jargon already) -- etc. But I make three points. One has been well illustrated above - that this system simply does not reward the long-term planning or well being of an organization. Secondly, when the USG essentially buys out a majority stake of your bank (because it's failing as a result of the aforementioned lack of planning), they call the shots, and you don't get to bellyache too much. Lastly, those "rules" about bonuses - what salespeople expect and so forth - are obviously premised on everything else being more or less normal. Everyone agrees now that the old rules about how this system was going to work have gone out the window, and going forward, you're going to see bonuses fall sharply in proportion to base salary. And I welcome it.
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Re: Exec Comp Restrictions Get Tougher [#permalink] New post 23 Feb 2009, 08:22
Toubab wrote:
Yeah, I understand how the system works. Bonuses, commissions, whatever you want to call them -- incentivizing salespeople to work hard (look, I'm using B-school jargon already) -- etc. But I make three points. One has been well illustrated above - that this system simply does not reward the long-term planning or well being of an organization. Secondly, when the USG essentially buys out a majority stake of your bank (because it's failing as a result of the aforementioned lack of planning), they call the shots, and you don't get to bellyache too much. Lastly, those "rules" about bonuses - what salespeople expect and so forth - are obviously premised on everything else being more or less normal. Everyone agrees now that the old rules about how this system was going to work have gone out the window, and going forward, you're going to see bonuses fall sharply in proportion to base salary. And I welcome it.


Is it a salesperson's responsibility to worry about the long-term planning of an organization? That task is generally left to senior management, strategic planning/development groups, management consultants, etc. and salespeople are told to stay out of it.
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Re: Exec Comp Restrictions Get Tougher [#permalink] New post 23 Feb 2009, 09:39
JayPX1 wrote:
Is it a salesperson's responsibility to worry about the long-term planning of an organization? That task is generally left to senior management, strategic planning/development groups, management consultants, etc. and salespeople are told to stay out of it.


Also, there is nothing inherent about bonuses that make them a poor form of compensation if you want long-term planning.

What is the old saying "You get what you pay for?". If upper management awards bonuses based on long-term thinking, that's what they'll get.

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Re: Exec Comp Restrictions Get Tougher   [#permalink] 23 Feb 2009, 09:39
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