Dear Mr. President, A Bonus Isn't A Bonus - Millennial Money with Cliff Mason

BIO

Cliff Mason is the author of Millennial Money. He is the Senior Writer of CNBC's Mad Money with Jim Cramer, and has been that program's primary writer, in cooperation with and under the supervision of Jim Cramer, since he began at CNBC as an intern during the summer of 2005. Mason was the author of a column at TheStreet.com during 2007, which he describes as "hilarious, if short-lived." He graduated from Harvard College in 2007. It was at Harvard that Mason learned to multi-task, mastering the art of seeming to pay attention to professors while writing scripts for Mad Money. Mason has co-written two books with Jim Cramer: Jim Cramer's Mad Money: Watch TV, Get Rich and Stay Mad For Life: Get Rich, Stay Rich (Make Your Kids Even Richer). He is 100% responsible for any parts of either book that you did not like. Mason has also had a fruitful relationship with Jim Cramer as his nephew for the last 23 years and will hopefully continue to hold that position for many more as long as he doesn't do anything to get himself kicked out of the family.

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Jan.30

2:56 PM ET

Friday, 30 Jan 2009

Dear Mr. President, A Bonus Isn't A Bonus

Posted By:Cliff Mason

Topics:Wall Street | Executive Compensation | Barack Obama | Stock Market

Bankers Bonus
iStockphoto
A bonus by any other name would smell just as sweet.

The fury over the fact that Wall Street paid out $18.4 billion in bonuses in 2008, the "sixth largest" amount in history, is about words and nothing else.

This isn't a compensation issue, it's a diction issue.

Outside of lower Manhattan, a "bonus" is a special, one-off reward for performance above and beyond what's expected of an employee. And if investment bankers had gotten $18.4 billion worth of bonuses in that traditional sense of the word, then of course it would be truly outrageous.

But on Wall Street, and at many law firms as well, a bonus is simply part, often the greater part, of your regular compensation. It may vary from year to year, but when you take one of these jobs, the understanding is that you'll be paid a base-salary and once a year you'll also get a "bonus."

The bonus varies in size from year to year, but it's not actually a "bonus" in the way most people think of the word. It's an expected part of your salary, delivered in a lump- sum near Christmastime. Historically, for many people on Wall Street, the base salary is much less than they could be earning elsewhere, but because they know they're getting a sizable "bonus," it makes sense for them to stay at their jobs.

So a bonus isn't a bonus.

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But since the vast majority of people don't know that, the public gets angry. And when the public gets angry, Democratic politicians who probably know better have to demagogue the issue. That's how you get the President saying, "there will be a time for profits and bonuses. Now is not that time."

I don't think this is class-warfare, although I wouldn't mind some of that, it's a simple misunderstanding. Obama wouldn't say, "now is not the time for paychecks." But that's essentially what a bonus is on Wall Street, just an expected part of your compensation. This is not crooked, greedy CEOs lining their wallets, although I won't deny that plenty of that happens.

The screwed up thing is that it's clear Obama wants to help these bankers, or at least keep their companies alive. But, as I see it, they're making it as hard on him as they possibly can from a PR standpoint, which is all that matters in politics.

We can't create a "bad bank" to relieve troubled financial institutions of their depressed assets if they're paying out $18.4 billion in "bonuses." It just looks terrible. So here's my advice to Wall Street: help us help you.

Stop paying bonuses.

Call them something else.

Think of something boring like "annual performance-adjusted block compensation."

I know "bonus" sounds sexy, but that's precisely what's wrong with the term.

A little verbal magic and this whole problem goes away.