– Tamar Frankel, a professor at Boston University School of Law, is author of “Trust and Honesty, America’s Business Culture at a Crossroad.” The views expressed are her own. –
The debate over corporate executive bonus payments should be put in perspective. Some say that the executives did not earn these bonuses and don’t deserve the millions in parting payments that they received. But if parting payments were specified in the executives’ contracts they must be paid. A binding contract is binding.
But what if the payments were made at the discretion of a board of directors, as bonuses usually are? Can such bonus payments be retrieved from the executives? Probably not. Unless the executives failed to give the board accurate information, or illegally caused the payments, they are entitled to retain them.
But directors who approved bonus payments notwithstanding the corporations’ losses may not be as free of liability. Unlike salaries, bonuses are usually paid at the discretion of the employers. They are awarded not as a matter of right but as a recognition that the recipients have done a good job. In the past, most were tied to the “performance” of the corporations, usually defined in terms of higher profits or higher share prices.
The lore was that “executive talent” must be rewarded with money or stars would migrate elsewhere. And without such talent the corporation — and America — would be lost. But this wisdom has now extended to non-performance situations where talented executives received bonuses no matter what happened to their corporations. The current crisis might not have been their fault, the reasoning went. They did their job. They performed well. They worked as hard as they did years before. Why should they be punished because the economy is in recession?
