ING’s CEO tells shareholders to keep the bonus

Posted by Marc Hodak on April 10, 2011 under Executive compensation, Reporting on pay | Be the First to Comment

Only, the audience for this announcement wasn’t the shareholders; it was the angry Dutch public:

“Regrettably, I have to conclude that the variable compensation for 2010 threatened to damage the slowly recovering confidence among customers and society,” Mr. Hommen wrote in a letter published Tuesday in Dutch daily De Volkskrant. “I hope that this shows that we take criticism on ING seriously and that we are willing to act accordingly.”

The only thing the bonuses threatened was how Jan Hommen, the afflicted CEO, looked in the media.  Mr. Hommen tossed the bonuses back to the company because the mob was angry, and European leaders–both public and private–have an unfortunate history when it comes to angry mobs.

It’s hard to blame the people.  They equate bonuses with good performance, and being bailed out and on the public dole with bad performance.  So bailed out companies still on the dole and awarding bonuses to management does not compute in the calculus of media-driven public awareness.  In the calculus of competition, which the media ignores and is largely invisible to the public, companies need talent.  A big part of getting and keeping that talent is total compensation.  In that context, the distinction of variable compensation, e.g., bonuses, is not very helpful–total compensation has to be enough to get the good workers.  If those workers are individually performing well, even in a crappy bank, you risk losing them and making the bank crappier by failing to give them their bonuses.

Of course, one could argue that the calculus of competition means letting banks fail when they get into trouble, and you wouldn’t get any argument from me.  Bailing them out and underpaying their best talent is just a way to slow the dying process, making it much costlier to taxpayers in the short run, and creates moral hazard and misallocated resources that make it far costlier to society in the long run.