A Bonus for a Job Well Done?

Let’s start with the idea of a bonus. It’s meant to be compensation for a job well done. Now, if the idea of losing enough money to ruin a world class company and bring the world financial system to the brink of collapse is our idea of a job well done, then, “ka-ching!” Party on! I’d love to see the contracts that even hinted that a bonus was due under such circumstances.

But, frankly, the bonus issue is a red herring for a more important question. Specifically, why the F$#* do these people still work there? Just what do they need to do to get fired? Losing more money than any group of individuals has ever lost in the history of the planet isn’t enough? Ruining a world class company not enough? Destroying trillions of dollars in wealth around the globe not enough? Just how much money does one need to lose before one gets fired? I don’t need an exact figure here; a ballpark approximation will do. And why in heaven’s name would we not only want to retain these people, but also go to the trouble of referring to the bonuses as retention bonuses?

Now, we’ve all read the reason given (and this is where it gets truly nauseating): “The credit default swaps are so very complicated that only the geniuses that arranged them in the first place are ’smart’ enough to sort them out.”

Several points need to be made here to clear up this utter fallacy.

Are These Guys Really Geniuses?

First, the idea that these geniuses are smart is laughable. I’m sure they all scored well on their entrance exams and did well in school. They probably all have certifiably high IQs. I’m not impressed. I’ve had the privilege of meeting many, many smart Wall Street geniuses in my career. I’m talking rocket scientist, slide-rule-using, smarty-pants-type guys. And the smarter they are, the dumber they tend to act. Why? Because they think they’re smarter than the rest of Wall Street.

Many of these slide rule guys are arrogant enough to let you know that you are not smart enough to understand them. This arrogance completely undermines their intelligence. Not one of the geniuses at the AIG Financial Products Division that financially engineered the demise of AIG will ever, ever create the amount of wealth they destroyed for AIG shareholders. Ever. Whatever any of them do for the rest of their careers, whatever success they earn, they will finish in the red as far as adding value to the system. Oh, they may do fine financially, but their net contribution to the system will be hugely negative.

Second, please do not believe for a second that only these geniuses can sort out the credit default swaps they created. To this the Q sez “Bolshoi!” These deals are not that complicated. What made them dangerous was the lack of transparency, not any inherent complication. Additionally, Wall Street is full of smart guys and any number of them will be more than happy to help out.

Third, and most importantly, why in heck would you allow the jackasses who ruined the company to have a hand in cleaning up the mess? When your surgeon leaves a sponge in your abdomen, do you have him perform the surgery to remove it? Maybe it’s just me, but I’m thinking, “Thanks, but I’ve already seen your handiwork. I’d like to give someone else a chance.”

The populist uprising over the bonuses is entirely justified. The criticism of the outrage arguing that it undermines the recovery and focuses attention in the wrong place may well have merit. But, the situation could not have been handled any worse. If Q had been in charge, every single person in the AIG Financial Products Division above the level of telephone receptionist would have been summarily fired. To the point that the contracts called for mandatory bonuses, I’d let them see me in court. Those very same contracts should contain provisions for a minimum standard of care and job performance. I’d take my chance with the jury.

What’s Really Going on Here?

This all begs the question: Why didn’t these guys get fired in September and why the massive amounts of money (tacitly approved by both the Bush and Obama administrations) in retention bonuses? Is it possible that there’s more here than we care to know? That maybe this mess is bigger or more intertwined than we might guess? That keeping these guys in place kept a lid on the lack of transparency? I’m not normally a conspiracy theorist but I reject out of hand the reasons given for the retention of these losers and the reasons for the bonuses. Draw your own conclusions.

• Forbes.com: The Most Valuable Teams in Sports. Forbes is quick to point out the rise in the value of sports franchises: in 2004, no team was worth $1 billion dollars; in 2008, a whopping 24 teams’ values top that mark. The No. 1: Manchester United, English Premier League. Value: $1.8 billion. My verdict: Does anyone else find it mildly ironic/hilarious that AIG is this team’s title sponsor?
• Forbes.com: Most Valuable College Football Teams. Despite what some college administrators may want the public to think, amateur collegiate athletics–particularly football and basketball–is big business, bringing millions to universities each season. The No. 1: Notre Dame. Value: $101 million. My verdict: Notre Dame’s exclusive television deal with NBC, and the fact that they aren’t tied to a conference, give them a clear advantage. Nevermind that Forbes.com can’t seem to spell the name of their head coach correctly.
• Sports Business Journal: Top 10 Naming Rights Deals (via The Dallas Morning News). We may be in the midst of a global economic recession, but you wouldn’t know it from recent stadium naming rights deals. The largest two deals in history were signed just within the last year. (And by financial service firms no less!) The No. 1: Tie between Barclays Center in Brooklyn, NY (Brooklyn Nets, NBA) and Citi Field in Queens, NY (New York Mets, MLB). Cost: $400 million (20 years). My verdict: After receiving $50 billion from TARP, I suppose a $20 million annual budget for having your name on a baseball stadium seems cheap for Citigroup.
• Wikipedia: List of Major League Baseball teams by payroll. Of the four major American sports leagues (MLB, NBA, NFL, and NHL), only Major League Baseball is without a salary cap. Therefore the teams at the top of this MLB list have the highest payrolls of all American sports teams. No data is available on wealthy non-American sports leagues, such as the English Premier League, as payrolls in these leagues are not publicly disclosed. The No. 1: New York Yankees, MLB. Payroll in 2008: $209 million. My verdict: The Yankees have had the highest payroll in the big leagues since 1995, but haven’t won a World Series since 2000. I guess money can’t always buy you happiness (or even championships).
• SI.com: The 50 Highest-Earning Athletes in the U.S. Some of these top athletes’ earnings eclipse the national GDPs of a handful of small countries. The No. 1: Tiger Woods. Total Earnings: $127.9 million. My verdict: Tiger’s yearly earnings dwarf that of most major American sports teams’ entire payrolls. In one year, he can afford to purchase one of the world’s most expensive homes in cash, completely debt-free!

Okay, so sports isn’t exactly Wall Street in terms of dollar amounts changing hands. But hey, at least we don’t have to bail these guys out!