Executive bonuses – Justified?

There’s been a lot of uproar in the media about the extent of the bonuses the executives of large corporates are getting.

My view on this is that if the executive made a significant change to the bottom line of a company, he deserves a percentage. But…

I don’t agree with the way it is measured!

All companies measure the performance based on a year on year change, with dire consequences in the long term sometimes.

The way I would do it is to agree on a percentage, but base it on a long term strategy. The executive only gets the bonus 5 or 10 years down the line if the changes that were made panned out to be sustainable, and not to the detriment of other facets of the corporation.

What say you?

5 thoughts on “Executive bonuses – Justified?”

  1. Executive compensation is quite a hot topic at the moment and I don’t think there is any magic solution. The key is that companies can’t really offer low yearly compensation because they need to attract the best CEO’s! You have to compare what your company is offering to what other companies are offering. The best solution seems to be to offer a mixture of annual compensation (salary), stock options and shares. The problem with only offering stock options is that executives are inclined to take bigger risks – that is probably a problem with your solution as well.

    1. You need them to take risks to take a company forward. It should be calculated risks, and if the exec knows that he only gets his bonus if the risks he takes pay off long term, then we’re just forcing them to take ONLY calculated risks and not short term blinkered options

  2. If the executive is only compensated for long-term performance he probably won’t join your company. Keep in mind that a company can often have terrible results no matter what the CEO does. For example, if the industry goes through a significant change (or a global recession) the CEO has very little influence over the company’s results. Executives know this and the best ones will only join your company if they are compensated accordingly – and these are the ones you want.

  3. I fully agree with you, we want the good execs to join. What you want to avoid is them making bad decisions, like Escom & SAA cutting down on maintenance to make it appear like they’re growing profit, while they’re actually just setting up the next one for massive failure while enriching themselves. So there has to be a solution in the middle somewhere, where good decisions get compensated, and the bad ones get ripped apart.

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