Reader Questions ATB Executive Bonuses

07/10/2008 05:22
Hi Don,
 
I thought I would forward this for your perusal and including for your site: I have culled the main items from quite a long article that appeared in this morning's Edmonton Sun.
 
ATB EXECS GET BIG BONUSES DESPITE POOR PERFORMANCE . . .
 
Alberta Treasury Branch officials will have to explain why more than $26 million in bonuses were handed out to staff after a year of dismal performance last year, says the head of the province's public accounts committee.
 
Auditor General Fred Dunn has questioned the massive bonuses, handed out even though the bank fell short of its net income goal by nearly 90% in the 2007-08 year.
 
Dunn's annual report released last week, said ATB earned a net income of $30 million in the year, a fraction of its $262 million target.
 
Dunn said management overrode ATB's policy that bonuses are tied to achieving or exceeding set targets.
 
The reason given for breaking the rule, Dunn said, was that "staff morale and retention" were at stake.
 
Somehow in my opinion this just does not sit right. Your opinion please.
 
George Proulx
St. Albert

SINC SAYS:

Well George, I doubt if this is going to sit well with many people, given the economic atmosphere of the past few weeks.

That being said, having spent some 40 odd years in the corporate world, it certainly does not surprise me that that old and tired, “staff morale and retention" line is being dragged out to defend this practice.

While there are some good cases for management bonuses, they should never exceed 20 percent of salary. In other words, an executive's incentive to do a good job should be to earn 80 percent of his salary.

The extra 20 percent should be a reflection of excelling at the job.

To understand the process, one has to understand the budgeting process corporate firms use. To put it bluntly, a budget is no more than crystal ball gazing based on past experience. There are many years that business will achieve results far in advance of predictions in their budgets, and rewarding executives for a booming economy is just plain wrong.

So is rewarding executives when a company has a year with losses on the bottom line, such as is apparently the case with the ATB.

Rather than be rewarded based on screwed up budget predictions and cost overruns that put the firm in a negative balance for the operating year, executives should themselves show some leadership.

They could do that by telling customers right up front that accepting such bonuses under the circumstances would be seen as an outrage and cancel all such bonus structures for that fiscal year.

You asked for my opinion George and there you have it.

Two other points though. The executives won’t like my opinion much and their board of directors will cower in fear of losing them and go ahead with the bonus cheques.