The other side of the story: A case for bonuses

Bonuses have been a popular topic of conversation throughout the recession. Specifically, many people have complained about the excessive nature of the bonuses paid to top executives on Wall Street. Although I agree that it is crazy for anyone to take home a $25 million dollar bonus, I fully understand why bonuses are such a crucial part of the financial services industry. An article titled "Greed is Good" provides a great overview of the important role that bonuses play on Wall Street. Essentially, its important to understand that bonuses are based upon performance and as such they provide strong incentives to employees to turn out their best output. Additionally, the way that bonuses are structured means that they are often paid to those who make things better, not worse, thus ensuring that there is minimal/no reward for poor performance.

Aside from providing incentives for employees to produce outstanding work, bonuses the main way that banks compete for top talent. Banks choose to attract top talent via performance based incentives which reward money whereas Silicon Valley firms choose to compete for talent by offering unique cultures which often come with offices filled with innovative perks (Nintendo Wii's, pool tables, you name it). If banks are going to, and need to, ask employees to work long, tireless, stress-filled hours they have to provide them with the right incentives and let's be honest, money talks. I think it helps to frame the situation like this: How do engineers decide which jobs to take in Silicon Valley? It's a complex algorithm involving money, friends, brand name and free food. How do those who want a career in finance make their decisions? Its a combination of brand name, opportunity for advancement and the strength of the pay for performance system. In the end, I feel the fundamental logic behind bonuses is strong, its just the nominal dollar amounts that needs to be fixed.

Facebook: A Business Perspective

Facebook is an interesting company/website/service/way of life—take your pick on what you want to call it. Anyway, I wanted to take some time to briefly talk about Facebook from a business perspective. Facebook is about to register its 200 millionth user (if it hasn't already by the time I post this), yet has struggled to find a way to profitably monetize its user base. Apparently, Facebook's CEO, Mark Zuckerberg, says the company is focused on growth rather than making money at this point. To be able to do so is clearly a luxury during today's rough economic times. Anyway, an article titled "Is Facebook Growing Up Too Fast?" talks about this issue plus more by providing a thorough in-depth analysis of the company's performance. After reading the article it seems like Facebook is a little confused about its identity as a company. Its objectives seem to be a mix of Google's mission complimented by Twitter-like features both of which are made possible by their government-like control over our information as users. Facebook primarily makes its money through ads, but it's hard to fathom how much revenue they are generating. Think about it, how often do you click an ad on Facebook? If you're like me, that's almost never. In fact, a former colleague of mine at Google commented on his status the other day (a Facebook reference during a Facebook critique is a little paradoxical, I know) that he finally got an ad that he could relate to (a targeted ad) on Facebook. I'm not sure how long Facebook has to perfect its advertising system before investors start to ask for a return on their investment, but I hope its sooner rather than later—I spend too much time on Facebook anyway.