WSU economist explains executive bonuses, government bailout
Feb 25, 2009 2:26 PM | Print

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In the midst of a massive bailout by the government, one might assume Wall Street wouldn't be paying out bonuses. Well, think again. President Obama was among those criticizing $18 billion in bonuses while the crumbling financial sector received a bailout from taxpayers. Wichita State University labor economist Jodi Pelkowski says there's more to it than meets the eye.

Jodi Pelkowski
Jodi Pelkowski
Pelkowski: "On the surface it's easy to argue that it shouldn't be happening, but from a free market perspective, the market dictates that if we don't pay them, somebody else will."

Although many people would like to find a scapegoat, Pelkowski says it's not easy to pinpoint the blame for the economic hardship facing some companies.

Pelkowski: "It's hard to distinguish whether it was bad decisions or bad luck in getting caught in an economic crisis. It isn't necessarily the air manufacturers' fault that demand for their product has fallen, given the banking crisis and businesses cutting back."

Pelkowski says it's hard for average laborers to understand how executives get bonuses in the midst of massive bailouts.

Pelkowski: "Really, perceptions do matter. People want to be treated fairly. It's hard for the average laborer to see so many of them being laid off and having trouble making their mortgage payments while well-paid executives are getting paid more."

While it's hard for many to feel much sympathy for management, Pelkowski says they are caught between a rock and a hard place.

Pelkowski: "Management is really in a catch 22. They need the money to stay solvent. They want to keep their executive skills and experience. But from a PR perspective, they're taking a beating in the public eye, so it might be helpful for management to delay those bonuses until a time where it's better."

John Challenger, chief executive of Challenger Gray & Christmas, the Chicago employment consulting company, said, "Wall Street is likely to pay bonuses to people unless there's legislation that prevents them, because nobody wants to be the one that doesn't pay when others do. If some banks give bonuses and others don't, the talent will flow to the good bank."

Meanwhile, paying bonuses this year is likely to result in a lot of backlash from the average American. When the bailout was first being introduced, many Americans were appalled that they in essence would be bailing out the fat cats on Wall Street. And while bonuses will go to high level executives, it will also go to top performers who have continued to do their jobs.

Allan Johnson, managing director of Johnson Associates, a New York-based compensation consulting firm, said, "The average person does not care.

Many Americans will think, "These people make 10 times as much as I do and I'm losing my house."

Thanks for listening. Until next time, this is Joe Kleinsasser for Wichita State University.

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