Executive Pay

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Another issue regarding financial institutions and the way thy compensated their executives was the issuing of large bonuses. Many CEOs and executives made large bonuses in addition to their high salaries, for example in 2008, Citigroup and Merrill lynch paid out $9 billion to their executives after they had lost $55 billion (Owens 2009). Now there has been questioning on whether these bonuses should be paid back or if these people should be able to retain these bonuses given to them by the shareholders of their company? This question just like capping salaries is a matter of opinion. Nine of the biggest financial institutions that received bailouts from the government paid over 5,000 of their traders and bankers bonuses of $1 million apiece (Story & Dash 2009). This includes Goldman Sachs giving $1 million to 953 traders and bankers as well as Morgan Stanley awarding seven figure bonuses to 428 employees (Story & Dash 2009). This shows that more than just the top tier executives received large compensation from these failing companies, these financial institutions were also paying floor traders and bankers large bonuses.

The paying of these bonuses even caught the attention of President Obama who called Wall Street “Shameful” for paying themselves $20 billion dollars in bonuses while simultaneously the economy was nose diving and the government was spending billions to bailout these companies (Story & Dash 2009). Morgan Stanley paid out in compensation seven times more than what they earned in profit, so the question asked if there is no money, how can anyone decide to pay themselves that much money in bonuses. But I believe forcing these people to pay back bonuses they received would be very hard to accomplish just from the sheer number of people who received bonuses.

The paying of these bonuses in my opinion is a huge ethical issue, one question that has been asked is how these companies could issue these bonuses while receiving government aid, I think that is a great question. If you are in the hole and receiving government bailout money the issuance of bonuses outside of salary should be halted, but the question is if these executives should be able to retain this money? I know for the average person to be asked to give money back that was given to you by your employer for a bonus would be unlikely to happen and I don’t believe most employers would do that. With the case of executive bonuses, the issue is that billions of dollars was given by the taxpayer to bailout these companies and keep them from going belly up. I do not believe these executives should be able to retain the bonuses they received during the years 2007 and 2008.

They shouldn’t have been able to receive these bonuses in the first place, if the average person is not performing their job they certainly do not receive a bonus, usually if they are doing a poor job, they are reprimanded for that, through some form of warning action or sometimes termination from their job but they do not receive bonuses. In the case of these financial institutions they awarded their employees with bonuses even with them losing money and requiring the government to step in and bail them out in order to not go bankrupt. I do believe if there ever was another major financial crisis, I would hope there would be some kind of government intervention on the issuing of bonuses, capping salary is another issue but I think bonuses should be regulated more. I think bonuses are a great incentive and should be given when they are earned, but I don’t think these large companies should be allowed to pay large amounts of bonus money to executives when the company itself is not profitable and especially in the case where the company requires money from the taxpayer in order to still remain a business.

Conclusion

In the years 2007 and 2008, there were a number of financial institutions who were in serious trouble, all were losing money, some more than others even to the point where they were being merged into other companies, others went bankrupt and dissolved, but most were given a substantial amount of money by the U.S. government via the taxpayer in order to keep their head above water. At the same time while these companies were barely surviving, many of the executives who worked for these companies were getting compensated substantially, through huge salaries and huge bonuses. The capping of executive salaries and the issuing of bonuses has been a highly debated topic since the credit crisis, and it is something that carries valid points on both sides of the argument. I personally think the salaries of executives like CEOs at large profitable financial institutions should be large, they should compensated because they have a valuable talent, but there should be a limit on their salary, I don’t think anyone deserves $100 million dollars over a course of a couple years, so there needs to be some reasonable number or ration presented that makes both sides happy. The same goes with bonuses, bonuses should not be given when a company is not profitable, but if a company is profitable I think bonuses give employees incentive to perform even better.

Works Cited

- Frank, Robert H. "Should Congress Put a Cap on Executive Pay?" The New York Times. The New York Times, 03 Jan. 2009. Web. 16 Apr. 2017. .

- Schecter, Anna, Brian Ross, and Justin Rood. "The Executive Who Brought Down AIG." ABC News. ABC News Network, 30 Mar. 2009. Web. 16 Apr. 2017. .

- Story, Louise, and Eric Dash. "Bankers Reaped Lavish Bonuses During Bailouts." The New York Times. The New York Times, 30 July 2009. Web. 16 Apr. 2017. .

- Corkery, Michael. "Executive Pay and the Financial Crisis: A Refresher Course." The Wall Street Journal. Dow Jones & Company, 18 Sept. 2009. Web. 16 Apr. 2017. .

- Owen, David. "The Pay Problem." New Yorker, vol. 85, no. 32, 12 Oct. 2009, p. 58. EBSCOhost,search.ebscohost.com/login.aspx?direct=true&db=f5h&AN=44720495&scope=site.