Fungible Convictions

Just a quick thought to make explicit from a New York Times op-ed about the pitfalls of large bonuses in banking.

Bonuses do indeed exist to keep executives loyal and hard-working, as the article says. Bonuses can and should get larger when companies have to compete for talented executives.

But bonuses also have the effect of making stars of those executives. Bonuses are often used as the measure of talent. In the abstract, they cause executives to lose humility—if I’m making a $50 million bonus, I must be seriously awesome. And in practical terms, bonuses signal to others that particular executives are worth inviting to be on boards, to speak at conferences, to represent business interests to foreign governments.

That is, by making stars of some executives, bonuses can take the focus off the actual goal: motivating people to do quality work for the company.

The Times article hints at all that. But it’s worth saying it explicitly: when it comes to loyalty and success, bonuses follow the law of diminishing returns.

Some great friends we have down in New York are the first folks we personally know of to be hurt by Douche of the Decade Bernie Madoff, the securities trader arrested this month on fraud—the largest fraud in American history.

Today a Christmas card arrived from those friends. It reads in part:

A bit less holiday cheer here: the benefactor of S.’s foundation had her money with Bernard Madoff, so she’s virtually wiped out, the foundation is closing and S. is losing his job.

Guys, Lindsay and I wish you the best for the holidays and know how much fun it can be to turn the page on a year.

Between 2001 and 2004, Americans under 44 saw their wages drop 8-9 percent. This according to the Christian Science Monitor in its article “America’s younger workers losing ground on income. ” Even more frustrating for my generation, wages increased for those older than 44.

Additionally, Americans spent more than they earned in January, the eighth month we’ve outspent our earnings in the last ten.

Let’s add onto that that my generation necessarily carries more debt than any generation before it, largely due to the cost of higher education. Let’s also throw in the fact that a higher percentage of people worldwide are receiving degrees than ever before, making the job market more competitive than ever.

I don’t know if I’ll be able to provide the same quality of life for my kids than my parents gave mine. I’ll be paying my own student loans for years, I have a mortgage that in adjusted dollars buys me less space than it would have ten years ago, I’m paid less than many of my peers by virtue of being in the book industry, my generation will have to pay for the retirement (and health costs) of baby boomers at a moment in history that we’re a few breakthroughs away from extending life another ten or twenty years.

But right now, as in, the present, we can’t complain too much. Even on my pitance of a salary, I have good benefits, enjoy Netflix, get dependable heating in the winter, and can travel a bit. And I think other yuppies my age could say the same.

But, man, those numbers are still worrying. I knew hourly wages had been dropping over the last decade, but really—the average American isn’t saving any money month to month? And my parents’ pay is going up while mine is going down? Is it because they are, in a sense, “rarer” because of their experience or unoutsourceablity? Or are there so many boomers in leadership positions now that they’re effectively funneling an increasing amount of money to them at the expense of me and my peers?

Oy. Is this what the 1970′s felt like? Economic insecurity. Constant bad news from around the world. Cynicism. A feeling that we’ve abdicated the throne of exceptionalism—Nixon then, Abu Ghraib now.

What’s going to be our Lake Placid Olympics? Who will perform our Miracle on Ice? Where’s my Mike Eruzione?