Oh sure, there was plenty of outrage to go around when word got out that AIG had paid out $165 million in bonuses back in March after taking a $180 billion handout from the government, but it turns out that was just the beginning. New disclosures reveal the embattled insurer actually shelled out an additional $454.7 million in performance bonuses to employees last year.
Now, before everyone goes and brews a fresh pot of indignation, let's take a quick look at the logic behind "attaboy" compensation. Are bonuses inherently evil? Not necessarily, and not even usually.
In most industries, salaries tend to be fixed within a certain range. Imagine if workers' salaries fluctuated every year; it would be a logistical nightmare for employers and employees alike. Cash or stock bonuses are more flexible ways to give top employees their gold stars.
Manufacturing companies first hit on the idea of rewarding executives for performance in the 19th century, as America's Industrial Age was cranking itself up. Bethlehem Steel was one of the first titans to embrace bonuses; during that company's boom years, the compensation of its executives was legendary and occasionally record-breaking. Initially, bonuses were just for the head honchos, the guys (always men in those early years) who had drivers and their own bathrooms apart from the hoi polloi. Wal-Mart'sMarch announcement that it had distributed $933.6 million in bonuses to 1 million rank-and-file workers would have been unthinkable.
More From The Big Money:
The bonuses those early executives earned were based on the company's fortunes that year. Initially, there was no Six Sigma, no personal-growth benchmarks, and none of the other metrics modern companies use to measure performance. Rewards for meeting departmental or personal goals came along in the early 20th century. By the 1930s, the multi-tiered bonus structure we're familiar with today had taken hold.
Prior to the Great Depression, stock was the preferred method of rewarding corporate bonuses, until the market plummeted, which led to cash's ascendance. Today, companies employ a mix of both to keep worker bees motivated. Cash is more widely used as a reward for meeting short-term performance targets; stock options and grants are longer-term vehicles.