Wednesday, March 18, 2009

Bonus Rage.

In 2002, the Packers were looking to upgrade their defense, and they went shopping for new personnel.  So they went out and signed the best player that the Packers could find.  Two-time probowler Joe Johnson.

Defensive linemen come at a steep price, and Johnson had other suitors.  So the Packers put together a nice package to lure him to Green Bay.  The deal included quite a bit guaranteed money, including $4.75 Million upfront.  The deal also included a roster bonus (which given the cap accounting rules was for all practical purposed guaranteed) to be paid in 2003.

Joe Johnson was injured and horrible in 2002.  The Packers (who had just received a huge some of taxpayer money to renovate Lambeau Field) still paid him his $1.75 Million bonus in 2003.

Why would they do such a thing?  Why would they reward failure?  How could the Packers fork over this money to Johnson and then expect a handout from the taxpayers?

Did Johnson "deserve" this ridiculous bonus based on his 2002 performance?  

That is a completely irrelevant question.

When the Packers sat across the bargaining table they promised Johnson a $1.75 Million bonus.  Johnson "deserved" whatever his contract said he deserved. The Packers could have insisted on a performance based bonus, but they didn't.  If they would have done that, Johnson probably would have signed somewhere else.  Or, maybe the Johnson would have accepted a performance based bonus in exchange for some other concessions from the Packers such as a higher base salary or higher signing bonus.  

The Packers wanted to put together the best package they could to lure Johnson into playing in Green Bay.  So, the Packers knowingly, and voluntarily took on the risk that Johnson would have a terrible season.  And the Packers did the right thing by fulfilling their contractual obligations after his terrible season.  And Joe Johnson was not a moustache-twirling villain for accepting the money that he was owed (and that he bargained for).  

A deal is a deal.  

You don't get to change your mind if the deal doesn't work out the way you intended.

By the same token, AIG sat across the bargaining table from their high level employees and struck employment agreements.  AIG structured these agreements however they needed to structure them to lure (or retain) these employees.  AIG assumed the risk of under-performance (even if you accept the far-fetched theory that all of these employees are greedy, incompetent oafs).  AIG could have insisted on a "performance-based" bonuses, but they probably would have needed to make some other concessions like higher base salaries, or risked losing its employees.  

Contrary to conventional "wisdom" I think AIG did the right thing by fulfilling its promises (and certainly did the legally required thing), just as the Packers did the right thing by honoring their promises to Joe Johnson.  

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