Rational thinking about corporate bonuses

Let us pause for a moment from all the hysteria, get a glass of water, have a seat and take a deep breath to reflect upon the AIG bonuses. Here is some rational thinking from William Byrne, a retired corporate executive and a very smart fellow who happens to be my brother (don't hold that against him):

Regarding bonuses. In most companies bonuses are paid on the basis of performance: corporate, division, individual. The parameters for an individual’s bonus depend on the employee’s job description, and are generally weighted according to the priorities assigned to the elements of the job description. Examples might be: generate new business, submit winning proposals, complete a project within budget, etc. And in my company, if the business unit did not make a profit, no one in that unit got a bonus – so there could be overriding corporate goals as well as individual goals.

So to make a blanket demand that all AIG bonuses are bogus might make the public feel better, but might in fact be detrimental to future performance. But this will never sell in the public place so long as large amounts of public money are going to AIG. So a compromise is needed that permits legitimate bonuses be awarded (but maybe not paid right away, or paid in relationship to a formula based on the return of the bailout money to the government), but prohibits bonuses for the unperforming (whatever that means) units of the company. A very sticky problem. Ed Liddy (current AIG CEO) is a pretty sharp guy with a very good management track record. He needs to show his leadership skills in this situation.