Is Toyota Wrong To Cancel All Executive Bonuses?
Jason Lancaster | Dec 15, 2008 | Comments 8
Few automakers are managed as carefully and thoughtfully as Toyota Motor Company – after all, Toyota didn’t become the world’s largest and most profitable car company by making bad decisions. This year, astronomical gas prices followed by a global financial crisis have conspired to make 2008 one of the worst years ever for the global auto market (especially the US market).
Sunday, Toyota announced a decision to eliminate all executive bonuses for the current year. While this decision will save Toyota more than 1 billion yen (about $11 million dollars), it’s not really about cutting costs. The truth is that $11 million is a drop in the bucket for a company of Toyota’s size – paying out these bonuses (or not paying them) will have a nearly insignificant impact on the bottom line.
Many companies, faced with the realization that executive bonuses won’t amount to much, would likely pay them out anyways. After all, Toyota is losing $1.1 billion in the last half of the year, so what’s another $11 million? Many would argue that Toyota executives don’t deserve to lose their bonuses – they’ve done nothing wrong. Why should anyone, executive or otherwise, lose his or her bonus due to circumstances beyond their control?
Some argue that paying out a bonus regardless of the overall performance of the company sends a bad message. Executives are the rank-and-file leaders and decision makers, and they must understand their performance is tied to the performance of the company overall. Regardless of circumstance, regardless of individual performance, the success of each individual executive depends on the success of the entire company.
Many people believe that employees must understand that bonuses are never certain. The use of the word “bonus” should be enough to convince employees they’re not entitled to this form of extra annual compensation, but that isn’t the case. Many US automakers justify the practice of paying bonuses during non-profitable years by stating that “executives will quit if they don’t receive their bonus.” Clearly, these execs have come to expect a bonus.
Either way, Toyota’s decision to suspend bonuses in a bad year sends a clear message that they don’t pay for poor performance…but is it fair?
Let’s say that you’re a top-notch executive working in the HR department at Toyota and completely unrelated to the day-to-day business of selling new Toyota vehicles. Let’s pretend that you’ve done a great job this year and that despite your performance you’ve been told that you’re not getting your bonus because the economy tanked. How would you feel?
What do you think? Is it fair for Toyota to cancel all executive bonuses this year?
Filed Under: Auto News
Jason,
This economic downfall, in which we all find ourselves, has not missed any company. As an executive, while I hate to see any reduction in pay or benefits, we all are in this boat together! Cutting costs, improving our process and becoming more efficient in our operation is embedded in our culture. Some sacrifice today will lead to a more efficient and lean operation, capable of coming through significant troubled times with an even stronger organization.
I agree with you Irv. It does stand out if they do cancel executive bonuses.
At least they are not flying around in their private jets and then holding out a tin cup and then still trying to get a bonus. Maybe a cut in the big bonus will save a cut in pay for the little guy. I know where I am, I’m taking a 20% cut in pay as of the 1/1/09 and I’m just a grunt while none of the professional levels are any kinds of cuts.
The executives are already getting paid to do a great job – that’s why they make more than the people doing the heavy lifting. A lot of the time, those bonuses are dependent on the downstream people (the “grunts” as Russ put it) doing their jobs. The big guy get the bonus, the small guy gets the pay cut – or the shaft.
I have to say I can see both sides. While I wholeheartedly agree that the “grunts” do the work and often get the shaft, I also wonder what kind of message it sends to top-performing execs. As a person who was an exec at a tech company, I wonder how I would have felt if the company held my bonus back despite me putting forth my best effort. If the company lost money on something that I had no connection to or responsibility for (they did) and decided not to pay me (they did not, I got my check), it would’ve become quite clear to me that they weren’t concerned about me as an individual or in recognizing my performance. I would leave when that became obvious, and I wouldn’t blame anyone for doing the same. While I agree that a company is a team, and that everyone should suffer or succeed as a team, the truth is not everyone performs at the same level. Failing to recognize individual achievement or success in the interest of the entire group strikes me as a little socialist. Still, bottom line, I think Toyota made a fair decision here. I just think it’s interesting to explore the alternatives. Thanks for the comments everyone.
I work for a for the world leader in what my company does and the bottom line is:
We make money we give extra money. We don’t make big money, the flow stops. I am paid very well for what I do and bonuses are just that, a bonus.
Is it fair, no. Neither is the current economic mess. a few people making bad decisions go us into this mess and everyone pays. Those who will prosper will be those who move on and see the opertunities.
This too shall pass.
P. S. I’m not getting a bonus this year either. And my company is not losing money. We cut the fat, Bonuses are fat.
Jeremy – Good points as always man. Some execs (myself included back in the day) are guaranteed a bonus as part of their hiring package. If I didn’t get one, it was because I wasn’t doing my job and I was going to get fired anyways – that’s how it worked in my role as a sales exec. So the sales guys should rise and fall with the tides. I still believe, however, that good performance should be rewarded and that these rewards should be viewed as a cost of doing business and not an expense that can be cut.
I wish more companies were as concious and realistic as Toyota. It’s unfortunate they will be recording a loss for the first time since 1941, but I have more respect for their organization than any other automotive company at this point. Any drop in the bucket is better than none. The money saved can go towards paying other hardworking employees a regular salary instead of eliminating their job altogether.