Recession Times
Though bonuses make an integral component of free market practices on human beings, continuing to pay them to executives by companies benefiting from US Government financial help as planned and as contracted is facing great criticism and opposition from politicians and media. The case of American Insurance Group is an obvious example of how refused normal bonus incentives have become after the capital market meltdown.
A possible solution against the criticism of overpaying executives in boom times and underpaying them in recession times is by linking bonus targets to an Operating Index. By doing so external effects (economic cycles) can be excluded from performance measurement. This makes incentive pay more fair or likely not certain as bonuses are based on performance relative to other companies in the peer universe.
While the notion of a fair system seems to be an equal deal, those who are outperforming by a large margin will feel slighted by this approach; Thus, a system based on individual company performance has been the standard.
Read more about this topic: Incentive
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“In a virtuous government, and more especially in times like these, public offices are, what the should be, burthens to those appointed to them which it would be wrong to decline, though foreseen to bring with them intense labor and great private loss.”
—Thomas Jefferson (1743–1826)