Letters – Wall St. Bonuses – Enough Is Enough – NYTimes.com

High compensation doesn’t attract the very best. It attracts the greediest.

via Letters – Wall St. Bonuses – Enough Is Enough – NYTimes.com.

Why is this the first time I’ve ever seen anyone say this? A more true statement has never been said. This sentence should be the banner headline of the past decade…

Why are we not hearing more about the real reasons behind this bonus scandal? It seems as if anytime I would read about the excessive bonus plans in the past they would be explained in relation to tax law and the detectability of executive compensation.

Internal Revenue Code Section 162(m), which eliminates the tax deductibility of nonperformance-based compensation over $1 million. For tax years

beginning on or after January 1, 1994, any executive compensation over $1 million is tax deductible only if a firm satisfies the requirements of 162(m). Generally speaking, 162(m) requires that tax-deductible compensation be based on an objective formula with specifically weighted performance measures. Although recent finance research (Perry and Zenner 2001) suggests that 162(m) has increased the pay-for-performance relationship, we find evidence that there is an unintended consequence related to the observed pay-for-performance improvement.

via CEO bonus pay, tax policy, and earnings management. | Labor & Employment > Compensation & Benefits from AllBusiness.com.

So what we seem to have is that Congress decided a decade and a half ago that executives were being overpaid. Ther method of changing this was to change the tax detectability of salaries in excess of $1,000,000.00. Fair enough, right. It seems at that point in time salaries were capped and bonuses began to be the standard method of payment for management.

Now my experience with bonuses are confined to one company and only one company, but, I was informed when I became eligible for a share of the bonus pool that there was a cap of 15% of my yearly salary. Seemed fair to me then, and seem fair to me now. But then again, I wasn’t anywhere near the taxable cap…Which brings us back the quote I started this with…

High compensation doesn’t attract the very best. It attracts the greediest.

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