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Think!

Posted by David A. Peterson on 20. March 2009 in Issues |

Yes I must admit I was watching the Congressional AIG hearings this week. I’m as irritated as the next guy that an underperforming portion of our government is paying out bonuses to its employees.

Let’s get a couple of things straight, 1st at least as I see it, the government as in you and I own AIG. We own 80% of the common stock. There is nothing that happens at AIG without the knowledge of the government.

The 2nd point is that I’m all for paying performance bonuses, and I like the idea of retention bonuses for critical personnel. However, never in my life could I imagine paying a bonus to someone who should have been fired several months ago. If you ran a business unit (and a sizable amount of government assets) into the ground you should be fired not enriched.

But that is not what the employment contract at AIG said. The employment contract said if you stay you get paid. The owners of the business (as in you and I) agreed with this when Congress pass the stimulus bill that they didn’t have time to read.

Now Congress and the American people are boiling mad. How could this happen? Who are these people who got these bonuses? Where was the oversight? Blah, Blah, Blah – quit crying you elected the representatives in Congress, you know that they don’t really read the stuff they vote on. You know it, you always say it is not your Congressman’s fault and you keep voting for the same person.

My problem is that there was a mistake, and now Congress is making a bigger mistake by rushing in and taxing the crap out of those that got the bonuses. What a farce and what a slippery slope that will become.

My background is in sales and sales management. I have been involved in my fair share of compensation meetings. There is a lot that goes on when setting up compensation, entire departments are built around it. These meetings typically boil down to what do we want the individual to accomplish and how do we reward them.

After the compensation plan is drafted it is then delivered to the individual, explained to them, double checked to ensure that they understand it, and finally they will have to sign the plan.

As a lifelong sales manager nothing makes me more insanely mad than a representative that doesn’t understand how they are getting paid. I have spent a lot of time in meetings both individually and in team settings covering the points contained in every comp plan that I have been involved with.

If they hit their marks – they will get paid. If they miss their marks – they will not get paid. PERIOD!

I will have a sharper eye on the plans composition this time around. I will always have in the back of my mind what happens if Congress decides that my employees are making too much money. How do I structure my comp plan to make sure the employee doesn’t get hurt?

Congress needs to THINK before they act on this 90% tax on the foolish bonuses that were paid out. This new bill could cause major changes in how plans are written.

As an example: When you move your household for a company the money you receive from your employer for the move is taxed – a lot of companies protect their workers by “grossing-up” the amount of the move to cover the taxes. That is a simple example of how a tax law ends up hurting a company and individual.

Did you get it…? The company has a greater expense (for all you non business people that really isn’t good) and the individual makes a little more money that is also taxed. The government really wins; they get the initial tax on the move and then the additional tax on the additional grossed-up income. Here’s an easy fix: DON’T TAX THE MOVE! It’s not really income the employee is receiving – it’s a pain in the ass to move not a pay raise.

Congress is rushing around setting up taxation policies that they don’t understand. One of the reasons they don’t understand it is they don’t read the bill. Even if they did read it they may not fully understand the consequences. Congress in general is house of doers not thinkers.

They don’t give a thought about how this bill or any bill may affect the non-involved. This 90% tax bill, even for its “good” intentions is bad, bad, bad, bad, bad policy. It will force compensation departments around the country to rethink how to get their employees paid.

Here’s my final thought: Instead of Congress creating another bill that will have more unintended consequences, how about just admitting that as a group you messed up, and you promise to actually read the bills presented before your organization. Go back and start reading and then reworking the mess you just sent us in February before creating a new mess in March.

THINK!

Here is an example off the top of my head of unintended consequences… What happens if the new bill needed to recapitalize the financial markets is rejected by Wall Street. By rejected I mean what happens if they say “take that money and shove it up your ass!” Wall Street will probably not fall into the 5pm Friday night trap of you “have to take this money or else” again.

If Wall Street knows that you are going to tax everyone’s income at a rate of 90% why in the world do you expect them to fall in line behind your policies? You would have to be on crack cocaine to agree to that. If Wall Street doesn’t fall behind the policy does that mean the financial markets are doomed? Now that would be an unintended consequence.

THINK!

NOTE: It’s nice to see the mainstream media picking up on this theme. I picked up the Atlanta Journal-Constitution this morning and they were running an article from the Washington Post on the possibility of Wall Street firms backing out of these rescue policies.

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