Sunday, March 29, 2009

All about BONUS!

UPDATE : This posting was only half written when first put up. I put a note to saying that I'll complete it but it didn't appear. Today's Straits Times carried an interesting article about a certain Pastor Prince of New Creations Church being paid $500K in salary. It is all well justified according to the church's honorary secretary, "Above all, through Pastor Prince's ministry, many people have experienced the grace and love of our Lord Jesus for themselves and seen how their lives have been transformed and marriages restored". In other words, the Pastor Prince's contribution to society and God is invaluable so one can justify a salary of $500K.....but don't be too quick to judge because Pastor Prince does live by the Bible according to the article - he had twice requested to go on a "no-pay scheme" (but was rejected) and has donated $563K to the church's $1B lifestyle hub developed in partnership with CapLand in Buona Vista. I do have to applaud the post-Durai Commissioner of Charities - all charities now have to submit annual reports through which we can know of how much compensation is given out to members of staff.

10 years ago, I received a call from a ex-classmate who told me that he was going to backpack around the world for 6 months. The reason being he received 12 months bonus for the previous year from his company which was in the semi-con business but the cyclical business had turned down and he decided to quit before the company retrenched him. The company had record profits and everyone was rewarded with huge bonuses. He did work hard but the bonus was on top of the OT pay he received for that year. I was happy for my friend but wondered what he did right other than to join the right company at the right time - not that he had extraordinary foresight that the sector/company would have such a blockbuster year -it was all a total surprise to him.

Recently there has been a lot of talk about the bonus received by certain people. AIG which blew up and took more than US$100B of taxpayers' money to stay alive caused an outrage when it was revealed that it was paying executives including those in its derivatives dept US$100+M in bonuses. Ordinary Americans found it hard to accept. Its CEO Libby who was employed after the govt rescue to fix the company explained that the bonuses had to be given out because they were based on employment contracts signed more than a year ago before the financial mess started and these employees can sue the company for double the payment if AIG did not meet its legal obligations. That explanation wasn't enough...contract or no contract, Americans just simply couldn't accept what was seen as unfair compensation. AIG had to increase the security for its staff and advised them not to wear their employee pass in public. The outrage subsided a little when AIG executives volunteered to about half of bonus. In Britain, the home of former RBS CEO Goodwin was vandalised[Link]. Goodwin has become a hated figure seen as a symbol of greed that caused the current crisis. He refused to give up his hefty pension and that enraged many Britons.


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"We are angry that rich people are paying themselves huge amounts of money while ordinary people r unemployed, destitute & homeless."
- Group calling themselves BankBossesAreCriminals (BBAC)
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In Singapore we have had 2 cases that raise some eyebrows - CDC staff who were paid 8 months bonus(anyone knows what happened to JohnLaw2012?) and the CapLand CEO who received $20M in bonus. It was explained that the CDC staff performed very well at the job and CapLand CEO deserved his bonus because the company had profits of $2B in 2007.....however it can also be argued that the profits were more the result of a property bubble than his leadership. CapLand did have a cash call in the form of a rights issue a few weeks ago at $1.30....which is dilutive, why didn't they do it when the stock was higher - they would have collected the same amount of cash for the same dilution. The point is it is hard to ascertain what his bonus should be
you can put in arguments for amounts from $1M to $40M, it is subjective and he gets what the board of directors agree to give.
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"Cost is not the same as worth" - Movie Shopaholic
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In the AIG case it was explained that the incentives were not aligned with the interests and survival of company. The traders in AIG were rewarded for the amount of CDS (Credit Default Swap) they sold and their contracts did not take into account the risks they were exposing the company to. The end result was the collapse of AIG and the company was required to pay bonsus to the people who caused the collapse. During the ministers pay hike debate, MP Low Thia Kiang challenged the PAP ministers to compensated themselves based on a multiple of the median income of Singaporeans or the income of the bottom 30% of Singaporeans. The PAP govt rejected that idea preferring to link their pay with the top earners of various professions - so what does this link incentivise?
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Warren Buffett said that CEO pay was rarely more than 50 times the lowest paid employee in the company in the 1960s and 70s. It rose from 50 times to 100 times to 500 times ....the CapLand CEO is getting a bonus which is 1500 times the income of his office cleaner. Is the CEO of today 10 times or 100 times better than the CEO of 60s and 70s? In 2007, according the Paul Krugman, the highest paid hedge fund manager was paid more than all the school teachers in New York combined. I think he was trying to say that compensation has become decorrelated with the contribution to society. However, it turned out compensation in some cases has become negatively correlated with contribution to society as we have seen in Lehman, AIG, Merrill and RBS.

How did compensation spiral to the stratosphere? A large part of it has to do with the level of profits as a % of GDP and all this is closely related to income inequality & debt. If you look back in history, there was only one period with the same income disparity, debt and level of profits as we are seeing today - the swinging 20s before the Great Depression. What history tells us is this type of income disparity is not sustainable and the high level of profits possible only by keeping wages of ordinary workers low. To maintain the aggregate demand, consumers have to borrow since they don't earn enough wages to buy all the goods produced - that leads to an rise in profits as a % of GDP. These profits have been used to justify CEO+management compensation...but is actually the result of an unsustainable economic system rather than the genius of a few men in the company. Take the CapLand case again, in 2007 we had a property bubble, people borrowed against the future income to buy over-priced property and that led to huge profits for CapLand. The prices cannot be sustained by the income of the buyers and prices sink when they can't pay their debts ....but the CEO of CapLand gets his $20M bonus anyway.
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"...you have to pay the market rate or the man will up stakes and join Morgan Stanley or Lehman Brothers or Goldman Sachs" - ,MM Lee April 2007
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What we need is leadership that will believes in creating an equitable system not people who will blindly follow an unjust system for their own benefit - that is not what leadership is about. How can we progress and change for the better if we are merely applying the same old formulas without questioning their correctness and validity?
"(PAP already has) ...'to scour the whole country to find the quality we now have' - MM Lee
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Perhaps the issue is not the shortage of talent or quality but of values. Good people with integrity will not step forward to embrace a system they do not subscribe to. No amount of money can make righteous people uphold a system that does not believe in democracy, human rights, justice and equality....and no amount of threat and fear can stop some people when they fighting for what is right....

31 comments:

Anonymous said...

It is hypocrisy and greed pure and simple. The economy moves in cycles. Good corporate performance and financial results cannot be attributed solely to top management's capabilities. The rank and file workers never got to enjoy the kind of perks they deserve during good times too. But they will be the first to go during bad times.

More ridiculous is CDC. Their activities does not correspond to how the economy functions, unless you are telling me these guys dabble in stock market and manage funds to make financial gains.

skeptic said...

The capital land profits was during a property bubble. Any CEO at the right time and right place would have recorded a profit too.

When there is an asset bubble, the CEO claims credit. When the bubble collaspe, the CEO blames external economic conditions.

Anonymous said...

In other countries, at least there are public protests against these obscene bonuses and even their gahmen are against it and wanted to stop it.

Here in Singapore, the gahmen said these people deserved their 8 month and multimillion salary and bonuses because they are very talented. Top pay for top talent!

Actually in a sense they are very talented! Because they can ensure 50% walkovers, 66 % mandate and 98 % seats every election. Also no protests happened. Chee Soon Juan tried to be "garang" last year but only managed to get 20
people (including children) to protest with him. All the adults got charged! Haha!

Anonymous said...

You don't need to be a talent in a monopoly. Likewise you don't need to be a political talent in a dictatorship.

The word 'talent' are generously dispensed, abused and perverted for the sole purpose of propaganda and placating the masses.

Anonymous said...

That CapitaLand CEO gets $20M and some CDC staff 8 months in bonuses represent in fact only the tip of the big iceberg.

An insider told me that it is in fact an ongoing policy of PAP to pay senior bureaucrats up to 7 - 8 months in bonuses on top of the usual type of bonus that everyone else inside gets.

Such bonuses are worked out on the basis of performance - how much his company or department was able to make for the government in that year.

So lets say a senior bureaucrat is paid a salary of $20,000 a month, after factoring all his bonuses his actual monthly income could easily hit double that amount or $40,000.

Remember all this is supposed to hidden from public knowledge except for public listed GLCs which have no choice but to report on their top executives' remuneration.

Lee Kuan Yew created a system in which he enforced perfect loyalty from these key people through such legal and exaggerated monetary rewards.

Bill Gates said on TV once when asked for his opinion on such a "market-rated" PAP system : "I happen to think it is very smart on the part of the Singapore government."

Oh yeah but like the fallen US banking industry that rewards top executives in such similar obscene fashion, the subject PAP reward system is a top-heavy one that is inherently unstable and can suddenly collapsed like Humpty Dumpty should the resources run out such as in an economic recession or because of huge losses incurred by PAP in its global investments.

If you look at what has transpired due to the financial industry crisis and its effect on the general economy, one can also foresee what is likely gonna happen to Singapore in the foreseeable future.

Anonymous said...

There's also the Ministerial Pay - a package veiled as Retention Bonus capped to Wall St's Bankers:

Mr WOng Kanina Seng is still very happy about the bonus given for letting go Mas Selamat.

Mr Lim Swee Say is still feeling rich when he looks at his pay slip.

Anonymous said...

Anon 2.05 pm

Nothing will happen to Singapore lah, at least on the streets or at elections.

No matter what the streets will be peaceful. And if there is election there will still be 50% walkover, 66% mandate and 98% seats for PAP.

This has already been proven for 40over years! And yet there is still no alternative. So why should it be different in future?

Anonymous said...

what happened to Johnlaw? It is not difficult to guess: he must have been severely intimidated by the authority, be it the police or ISD.

remember what happened to the town council guy who faxed some "confidential" info to Cheam See Tong?

This is done to send a message, that if anyone leak anything potentially damaging to the pap, the slap will be immediate and heavy.

They have to do this because there are simply too many skeletons to hide. Imagine if more details about ministerial pay or GIC, Temasek's investments are leaked this way....

Anonymous said...

Anon 3:21,

I feel and think exactly the same way as you do, seriously. And apparently many S'poreans feel likewise.

However I am just wondering if transient feelings and thoughts are reliable. Well just look at how stock markets crash like nothing when a year before that stock investors was laughing their way to the banks.

Similarly before Singapore fell to the Japanese in WWII everyone thought Singapore was impenetrable fortress under the British... then bang hell broke lose.

But I suppose it is not for us ordinary people to worry about such things when top decision makers and movers in society are just so sure of the system.

Yeah, may be we are just whining and thinking too negatively lah.

Anonymous said...

What irks me about the Capital Land case is that the BOD allowed the bonus formula to be mechanically pegged knowing full well that part of the P/L comes from revaluation surpluses of its land bank, projects under construction and completed units not sold. What is the value add of the CEO in this case quite aside from whether there were sufficient checks on whether the revaluation exercise was properly and fairly carried out. Valuations are never a science but an art. objective

Anonymous said...

Regarding the AIG bonuses while I am not for top level executives obscene bonuses 160m+ in bonuses for AIG employees is not a lot considering the amount of employees they have.
I think it is WRONG for the American public/politicians to institute mob tactics to threaten and withdraw the bonuses. There is practically no incentive to work for AIG given bad reputation etc. The people responsible for failing to manage the risk I believe has already left ago.
However I do not know who the bonuses are going to. If they are for the highly paid already I am all for the reduction in bonuses.

As for the CDC bonuses I think it is ridiculous for them to pay 8mth bonus on top of regular bonuses given the current climate. I wonder if the town councils receive less bonuses because of the Lehman bonds. This talent propaganda is nonsense.

Anonymous said...

@anon 3.21pm

The only sure things are death and taxes....

Anonymous said...

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提这价,提那税,
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民薪降,那像样。
受够了,你这党,
快下台,站一旁!

Anonymous said...

Anon 12:02PM:

"Their activities does not correspond to how the economy functions, unless you are telling me these guys dabble in stock market and manage funds to make financial gains".

That is precisely what I'm telling you. Are you unaware of the tens of millions lost by town councils in speculation on the financial markets? Are you aware that no heads have rolled, no one has been held responsible, and that absolutely nothing has changed? More to the point is: what are you going to do about it?

Are you going to question why TCs need to overcharge their captive customers to the tune of $1 billion for a rainy days and covered walkways? Are you going to enquire why bonuses need be paid at all to the already highly rewarded for doing what is their normal duty and insist on transparency and accountability? Or are you going to gulp hard, pretend you don't know like mayor Teo Ho Pin and move hurriedly on?

Anonymous said...

Anon 2.52 am

The PAP and TCs will only
respond properly to your questions and demands when there is no longer 50 % walkovers, 66 % mandate and 98 % seats for PAP.

Not by screaming loudly on this or other blogs.

The only good out of this screaming is just letting off steam. This's also good. I did it too. But don't expect things will change, unless the % mentioned above drop like a stone. U think this possible through NATO on this blog?

Anonymous said...

I don't know how everyone else thinks, but I know which party I'm going to vote for in the next elections....and I'm going to make my family and friends vote for the same after seeing the mess that this country has gotten into.

Patriot

Anonymous said...

Read "Fooled by Randomness" by author Nassim Taleb, and we will understand that our success is pure luck of being at the right place at the right time. His theory that it cannot be replicated. At least that is what I believe in.

Anonymous said...

ridicluous bonus scheme.

corrupted bastard, every single one of them.

Can anyone find out what's their sons and daughters's name and address, blogs etc..?

populist guy

Ghost said...

I can understand people getting angry with the bonus of the people in AIG and RBS, even the CDC but CapitaLand? The company posted a profit, very good profits in fact. Whether or not it was in a property bubble is secondary to the fact that they did very well. So why shouldn't the people there be rewarded for doing well? I got no problem rewarding good results

Anonymous said...

CapitaLand just like any big company in Singapore with government links (think NTUC, SMRT) engineer their profits at the expense of the ordinary Singaporeans.
You think they can make it when they step out of this tiny country? I see evidence of them being burnt in China (think Suzhou Industrial), Indonesia, Thailand, Malaysia, etc. Mr Lee Hsien Loong thought has plenty of success in Burma, places where the government style is closely aligned and needs foreign capital.

Anonymous said...

It is almost impossible to fail when a newly established organisation has massive capital injections during start-up and a blank check to pursue its line of business. With the Government machinery fully backing the organisation, how to fail? Most succeeded except for a few like Chartered Semi-Con which has been bleeding ever since inception. What is puzzling to me is how does one view CDCs and Town Councils and similar organisations which are not profit-driven. With charities and religious organisations, there is a need to get donations, the more the better and as such incentives are given. No religious or charitable organisation can survive without money, which is a fact. If any person were to apply for a job in CDC or Town Council, will there be a bonus stipulated in the employee's Appointment Letter?

Anonymous said...

If a GLC makes profit, it cannot be just the top people who deserve the credit. If really it is a company's policy to reward its people for the company profitability, then why are not rank and file similarly rewarded? That is, if the top people get 7 months bonus, so should the rank and file.

Apparently this is not the case.

Appointed CEOs in GLCs are not like owners of successful private companies who once took great personal risks and struggled to build up their businesses from scratch and therefore deserve their high income.

This high bonus issue of GLCs and other govt organisations is more about the politicization of them, PAP-style, at the expense of the interest of the real owners - the people.

I know PAP has been tryng all ways and means to disassociate GLCs from the concept of public ownership and hence end all obligation to public interests.

Look there is already a strong case in point : The so-called privatised hospitals like SGH, Changi, TTS are still run like any govt bureaucracies and are hardly as efficient as real private hospitals. You just have to checked with anyone who works in such so-called privatised hospitals to confirm this.

The real objective in calling them privatised hospitals is to raise their fees to those of the commercial hospitals.

So by using the concept of "privatisation" in a warped manner, PAP disengages itself more and more from its responsibility to the people.

Now it even tells old and infirm S'poreans to ship out and stay in the old folks homes over in Johor, as though they are no longer citizens.

It is incredible that there are still people who still think so innocently and straight about PAP system. Time to wake up.

Anonymous said...

CDC are not profit-centre. They are cost-centre operate on taxpayer monies. So why are they getting more than 1 month bonus?

Onlooker said...

The current economic crisis is caused by the very people who pay themselves high bonus.
If they want to choose a benchmark that caused the economic failure in the first place they must also bear the consequence faced by those peers.

Now the perception overseas is we have a bloated PM office.
But it does qualify us as uniquely Singapore.
ie uniquely bloated bureaucracy.
And the fact itself point to the fact that the person who should be in charge is inept.
Kind of make one wonder how the public will feel if the future generation need to keep 2 MM 6 SMs and 3 DPMs in the office when it's the next generation's term.After a over glorified career as PAPer general of course or rear admirer.

Anonymous said...

The gahmen started the ball rolling by having top pay for "top talent". So even temple and churches are following!

What is amazing is that these "religious" entities can have so much donations that they can afford to pay a pastor $500K!

If people don't mind donating what's the fuss?

If people and opposition don't mind giving PAP 98 % seats, what's the fuss over PAP policies?

Same principle has willing seller willing buyer.

Why they don't mind? Don't bother and no use bothering.

Rialce said...

Ultimately, it is all greed. Don't blame the government ppl, we empowered the government. Remember how you were afraid of losing your meagre salary, devaluation of your home, your fellow countrymen becoming maids in other countries etc. But still I think LHL is a good man, I am highly suspicious that he is oblivious to what is happening around him. He seems sincere.

Anonymous said...

Man creates institution and once it is established man becomes subject to it, hence the term institution-man.

We do not need more institution-men in government and bureaucracy. If Lee Hsien Loong is an institution-man, never he might be a good man at heart, then he is not the kind of leader we need, not when there are so many defects on the most fundamental level of governance - basic healthcare for sickness and old age, basic housing affordability, basic security over our life savings (CPF), basic assurance that national reserves are properly managed and not by the whims and fancies of one or few men only, basic political checks and balances ... the list goes on.

These are signs of a nation in jeopardy because of defective governance. But Lee Kuan Yew says it is a good government and his son Lee Hsien Loong is sure a "good man" because he is behaving every bit the ideal of a son with unquestioning filial piety to the father.

But we do not need an obedient son nor even someone who is merely sincere at heart but does nothing about the defects. We need a real leader who knows and will tackle these problems. He is not up to it.

Tell me if I am just making out a story!

Anonymous said...

Yes, I cannot agree more that Mr Lee Hsien Loong is oblivious to his surrounding when he raises the GST to help the poor and destitute, and he pockets the highest salary from taxpayers' $. Remember these laws were passed closely to each other.

He cannot be more sincere than that.

Anonymous said...

PAP scoured the country to find talent??

I thought they only scoured around their dinner tables.

It's so strange that most of our country's core talents are related to each other.

Anonymous said...

To Rialce at 11:19am

You said LHL is a good man ?? You forget to say he is also a greedy man - he paid himself the world's highest salary for a PM for managing such a tiny city state ! Obama has more responsibilities than him and yet Obama's salary is only fraction of LHL's !

So is LHL really a good man after all ?

Anonymous said...

To anonymous at 3:56 PM who wrote:

"Look there is already a strong case in point : The so-called privatised hospitals like SGH, Changi, TTS are still run like any govt bureaucracies and are hardly as efficient as real private hospitals. You just have to checked with anyone who works in such so-called privatised hospitals to confirm this.
...
So by using the concept of "privatisation" in a warped manner, PAP disengages itself more and more from its responsibility to the people.


I was exposed to the insides of both "restructured" and private hospitals. I agree with your observation in general.

First to declare my personal interests, I work for a private hospital. Here are my generalisations. Private hospitals are more cost-effective and provide better service for your dollar. "Restructured" hospitals throw too much public funds into computerisation or new technology but trip badly over its implementation. Focus on documentation (to look good on-paper), but forget the medical and nursing care at the core of its heart. For the many "foreign talents", nursing is just a job and the Singapore experience a springboard to real 1st world.