Might As Well Throw the Money Away
January 5, 2007

Once you've given incentive pay to an executive, it's hard to get it back from him if something goes awry. That is the not-very-startling point of an article by Phred Dvorak and Serena Ng in The Wall Street Journal. Case in point: FPL Group Inc. top executives received $62 million in bonuses linked to an intended merger. When the merger didn't go through, the company tried to retrieve that money - but, after three years and "millions in legal bills," the company got back only $9 million of it.

Duh.

Why would you pre-pay a bonus that is contingent on something that hasn't happened yet? Why not make the payment subsequent to - or at least simultaneous with - the anticipated event? Why should executives, shareholders, vendors ... anyone ... get paid in advance?

I have to admit, I've made this mistake myself once or twice in my career. In an effort to please a deserving someone as quickly as possible, I've awarded a cash bonus based on an outcome that, at the time, I was confident would take place. When it didn't, I was doubly disappointed - both with the outcome and with myself for needlessly giving away the money.

At least I wasn't foolish enough to hope to recover the given-away dollars. The rule should be: Money, once given, should be treated as gone.

posted by M. Masterson @ 1:15 PM,

2 Comments:

At 3:22 AM, Anonymous Anonymous said...

This is nothing new under the sun. If you really think this is bad, just look at how corporations pad the retirements of their executives. All this at the expense of their "401K" future retirees.

 
At 4:30 PM, Anonymous PJ said...

A couple of years ago I purchased a program that would provide on line help in writing and a guarantee for obtaining a grant to open a small business. The fee was put on my credit card and all, and I do mean all, the contacts were outdated. Out of 50 contacts, I received 15 replies telling me they do not give grants for small businesses and how on earth (cleaned up a bit)did I get their address. Ouch! I went on line to a free site and got all the information I needed and wrote a killer proposal. My on line "helper" wanted to know who helped me write my proposal because it was so professional and the one she wanted me to mail read like a third grader wrote it in comparison. Several lessons learned, including no refunds available.

 

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