Executive Bonuses as Motivation

As much of the country laments the demise of Toys R Us — a source of much nostalgia for generations of Americans since the late 1950s — it is worth taking a look at one way the company tried to climb out of bankruptcy just a few months prior: giving its top executives millions of dollars. Quoting a December 2017 article of USA Today:

Toys R Us, which is based in Wayne, N.J., agreed to trim its original $16 million bonus proposal by $2 million, and to make $5 million of the bonus payout contingent on the company creating a business plan that allows it to emerge from bankruptcy.

The company said the bonuses are necessary because they motivate executives to boost sales during the critical holiday shopping season.

Bankruptcy Judge Keith Phillips overruled objections by the U.S. Trustee’s office, which serves as a public watchdog in bankruptcy cases, that executives at Toys R Us are already highly paid compared to other retail leaders, and that they also receive lavish perks, such as cars and drivers and private airplane trips.

We know now, of course, that this didn’t work. But even without the benefit of hindsight, the idea was absurd on its face: an ailing, cash-strapped company needed to induce its executives to boost sales by giving them millions of extra dollars on top of their lavish salaries? What about the thousands of average workers who are actually doing all the legwork of stocking the shelves, running the registers, assisting customers — you  know, selling? Where were their bonuses? Are executives so lazy and entitled as to require so much more money to just do their jobs, while most of us are expected to work hard without anything like that kind of incentive?

This policy isn’t unique to Toys R Us of course; indeed, it is par for the course in American corporate culture, where those at the top of a company’s pyramidal structure are increasingly disconnected from the needs and plight of everyone at the bottom. Businesses are increasingly run for the sole purpose of enriching executives and shareholders at the expense of workers and consumers.

By the same token, it is also interesting how customers are told that prices will increase if employees get even a modest pay bump, yet curiously this does not apply when millions of dollars in profit are allocated to a relative handful of individuals in the company. If efficiency is the real goal, what could be more inefficient than putting so much money into the hands of a few executives, much less those doing a mediocre job?

I am genuinely unsure how anyone could view such a practice as anything but predatory and self serving. Whether on the basis of social responsibility, or from the standpoint of financial practicality, it is unjustifiable. What are your thoughts?

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