Over the past few days it has become somewhat fashionable for folks who purport to understand business to criticize recent moves by the government to reduce bonuses at companies that have received government funding.
Without getting into the merits of whether these folks deserve their bonuses or not, I strongly believe that the government should have absolute authority when it comes to these bonuses.
When a VC funds a startup, one of our most important jobs is to oversee the CEO and top management. We have to approve management salaries and bonuses. The same goes for Private Equity shops in LBOs and non-profit board members at charities. As a board member this is just another one of our governance responsibilities. The IRS actually forces non-profit board members to show the steps they took determine executive compensation every year in part VII of form 990 under schedule J.
The Federal Government should be no less diligent with its equity stakes as I am with my non-profit or for-profit board seats.
So how would I deal with the bonuses? I would ask myself a few quick questions. Did the guy earn the bonus? If I don’t pay the bonus will the guy stick around? If the guy leaves can I find someone else to do the job? If the answer to all three is ‘no’ I know what to do.
3 responses so far ↓
1 Umair // Mar 24, 2009 at 10:38 pm
Good post. The first question, of course, is whether I have the money to pay a bonus.
2 Rich // Mar 26, 2009 at 9:41 am
“Without getting into the merits of whether these folks deserve their bonuses or not, I strongly believe that the government should have absolute authority when it comes to these bonuses.”
Really? An 80% stakeholder in a corporation has no authority to renegotiate contracts and salaries? Think about what the world of VC would be like if the funds had no contractual authority after securing 80% of a company’s equity.
3 Aziz Gilani // Mar 26, 2009 at 1:12 pm
Rich: I think we are on the same page. The last funder of a company with limited runway always gets to make whatever rules they want, especially one that is in pseudo-conservatorship.
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