Fishy Bonuses

 About the time of the AIG bonus payouts scandal in the USA, the word of the day on 16 of March 2009  in http://dictionary.reference.com/  was Cormorant a gluttonous or greedy person.

The ornithological version of the Cormorant is a very widespread sea and  freshwater species which, as may be inferred, has a voracious and greedy appetite. The Great Cormorant can dive to considerable depths, but often feeds in shallow water on a wide variety of fish prey. The  New Zealand subspecies is the Black Shag or  Kawau.

Some Chinese fishers tie fishing line around the throats of Cormorants, loose enough for them to catch fish but tight enough to prevent swallowing. The tethered bird is reeled in and the fish disgorged by forcing open the bird’s beak, which triggers the regurgitation reflex.

This method of new business acquisition has similarities with the rather fishy system which operates in the world of finance and insurance internationally, especially in the USA and the UK.

AIG executives recently received billions in bailout money to allow the company to survive. Then the company turned around and gave over US$150 million of this taxpayer largesse to its executives in “bonuses” for dragging the company under water and almost drowning in it.  No one appeared to have their knuckles rapped, no one was stopped from going past go and certainly no one went to jail.

Of course AIG executives don’t have a monopoly on individual bonuses. They have long been part of the subterranean and murky world of big finance.

Bonus, from the Latin word for good, means something given or paid over and above what is due. It is a much vaunted way of increasing output and is obviously based on studies of donkey propulsion and the respective motivation properties of the stick and the carrot. (Sophisticated schemes consist of the carrot being affixed to the stick with a nearly invisible thread as in Oriental Cormorant fishing. The same beak reflexology comes into play).

The trouble is that it is doubtful whether bonus systems are efficacious.

As the new wave of behavioural economists point out, while “rational choice” orthodox economists have long addressed the question of to what extent workers are primarily motivated by personal gain, most studies appear to show that linking productivity to pay doesn’t increase it, that even if it did managers are unwilling to enforce the schemes, and that the managers are probably right because such schemes undermine teamwork.

The one kind of pay scheme that tends to increase individual productivity is profit-sharing-but this is a problem for the rationalists. Why, rationally, would one worker increase their effort when the extra revenue they generate will be split with everyone else in the company?

The answer is that computer turbocharged mathematical modeling is no substitute for the observation of how people actually act-not that that can be a pure scientific method, because the observer modifies what is observed.

What is being observed now is a democratic distaste of top-heavy, individualistic management bonuses.

In 1932 , during the Great Depression, an event receiving a lot of attention recently,  the “Bonus Army” consisting of  43,000  World War I veterans and their families marched on Washington, D.C.  They demanded immediate payment of Service Certificates granted to them in 1924, but not due for payment until  the rather prescient  year of  1945. The Anti-Bonus Army in the USA and elsewhere is now gathering strength in far greater numbers.

The designers of selfish and extravagant bonus schemes should reflect on what has happened to the nesting areas of Great Cormorant breeds. The locales of choice for nesting are cliffs or trees. The latter are eventually killed by the Cormorant droppings.

There is an admonitory phrase about connecting one’s sanitary habits too closely with one’s nest. The admonition is doubly applicable where the nest eggs of others are also at stake.

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