Executive bonuses hard to control

In 2008 Wall Street firms lost $35 billion, while the executive compensations in these firms amounted to $18 billion. People who are hurting financially are upset at such high pay scales that seem to have no reasonable limits. There is no easy solution to correct this problem and recent Wall Street Journal articles pointed out some reasons for this.

In the 1970s there was developed a bonus arrangement that has been an important and necessary part of salaries in the fast moving and stressful industry of finance. Henry Paulson (of Goldman Sachs) explains that 80 percent of profits are derived from the work of 20 percent of the staff. As soon as legislation is passed to punish yesterday's fools, the companies will find legal ways of working around these new rules in order to keep top people on their staff.

Here are a few reasons why salary control is so difficult to monitor and problems that the public may not be aware of:

• Much of the compensation is in stock options; they can buy stock now at a very low price and then sell later at the market price.

• Current salary limits are aimed only at the senior executives. There are stock traders, sports figures, politicians, and other executives who should have limits on their pay, but placing such limits will probably never happen.

• Outsourcing. Chief executives can form a partnership, hire and pay for those partnership services at the prevailing rate scale.

Part of a solution could be to require companies which pay excess bonuses to carry insurance to protect the stockholders if there are heavy losses in profits and stock value. More open disclosure of salaries and benefits paid by corporations, school and public administrators, and politicians would bring to light many inequities, but to correct them requires action from politicians; many who generally are afraid to act or are content with the short term status quo.

Bill McNutt

Des Plaines