Pay, Bonuses and Perks: Corporate View vs. Populist View

by: Bob McTeer

On matters such as corporate uses of private airplanes and first class air fares, meetings at luxury hotels, eye-popping salaries and bonuses, and other extravagant perks, my position is one that many would call inconsistent. Believing that corporate executives really do want to maximize profits or shareholder value, I have given them the benefit of the doubt in assuming that their decisions are based on legitimate cost-benefit analysis.

Another reason I have avoided criticizing their exorbitant salaries and bonuses are equally ridiculous salaries paid to professional athletes. If good eye hand coordination and the ability to hit a little ball or throw a large ball through a hoop can command such salaries, the contributions of CEOS are surely as valuable to society. The third reason I've avoided criticism of either is that it really isn't any of my business.

We've seen recently that many people have no such qualms about criticizing what they regard as corporate excesses, especially in corporations that have received public assistance. What amazes me is the crowd's certainty that such practices are bad for business. Corporate attempts to rationalize them as profit maximizing fall on deaf ears and get hostile reactions. Detroit executives criticized for flying corporate jets to Washington knew better than to argue; they hopped into their ridiculous little green cars for the next trip.

What I find interesting is that while my instinct is to defend these corporate practices, I really don't believe that most of them are profit maximizing. And that heresy didn't just start with the present crisis.

I've long believed that corporate meetings don't have to take place in the most expensive hotels. I've long believed that many corporate meetings are unnecessary and unnecessarily costly. The telephone works pretty well; so does e-mail.

Highly-paid, over-burdened CEOs can probably justify travel on the corporate jet, along with colleagues to fill it up. But that perk goes a long way down the corporate ladder, and, at some point, becomes wasteful for the corporations. It's an indirect way to pay corporate officers who are already paid very generously.

I believe in pay for performance, but I have a hard time believing that axiom legitimately leads to multi-million dollar salaries. Show me a CEO making $50 million, and I'll be happy to replace him for half that amount and feel lucky to get it. Of course, I would be replaced in the same way. What I don't understand is why the talent pool doesn't drive those wages far down from where they are.

I believe in the logic behind bonuses for outstanding performance. I would probably work a little harder and a little longer to make the bonus, but I would do that if the bonus were under six figures. Over eight figures wouldn't be necessary to get me hopping. I'm not sure what I would do differently if a million dollar bonus were at stake rather than a 100,000 bonus. I would try as hard as I could for the smaller one. What more could I do but develop an ulcer.

I think the same considerations apply in athletics. I don't know what Tony Romo is making and what his bonus arrangement is, but what is he supposed to do? Try harder? What is a highly-incentivized coach supposed to do differently? Put in more touchdown plays?

I lost the 1970s to one of my son's junior tennis. I hit balls with him most days, took him to his tennis lessons, and took him to tournaments. One of the tennis mothers always said when watching her daughter's matches, "I need a wet rag on my head." I too always needed a wet rag on my head when watching my son play.

I mention this to say that I learned a lot about tennis back then, which, I believe, applies to sports in general. One thing I learned is that doing better isn't usually a matter of trying harder. Training harder might help, but trying harder in a match usually doesn't. First, they are already trying to do their best. Trying harder just tenses you up and costs you timing and control. What is desired is to "find the zone," which is some sense means trying less hard. Stop thinking too much. Tell the little voice in your head that's always second guessing you to shut up. Let your body play. Get in the zone. (Read Inner Tennis.) I don't think tennis is unique in this respect.

With that as introduction, here is my question. Would my son have played better and won more matches if I had offered him a $100 bonus per win? If not, what about a $1000 bonus. Will Tony complete more passes for a $1 million bonus? I think not. But the Monday morning quarterbacks will say he isn't trying hard enough.

I want a bonus. A large bonus! But the dirty little secret is that I'm working almost as hard now without one and working as smart as I know how.

Don't try to apply this to progressive income taxes. If I had a single job and no other prospects, I might work as hard if the marginal tax rate is high as if it is low. But I would be less interested in overtime, less interested in a second job, less interested in more consulting, more corporate boards, or more speeches. But, in any of these endeavors, I'm going to be doing the best I can no matter how high or low the marginal income.

Like Mae West, I've drifted. (She used to be white as snow, but she drifted.) My point is that I agree with the populace who doubts the value of high salaries, bonuses, and perks. On the other hand, I don't plan to join the populist mob. It's just not my business.