"Let’s placate the public and fake real change," signed: France

France’s Finance Minister announced today that the country will tax bonuses awarded to bank employees 50% in 2010. The bonus tax will only be applied to bonuses greater than 27,500 Euros. I strongly advocate a change in executive compensation, not just in the United States, but in all economies worldwide. Because it is people who are motivated by money that got the world into the global recession, the solution is to change how these folks are awarded their money. If they will not behave consciously of their own accord, then let’s bait them with their favorite treat: cash. But I digress.

France’s bonus tax is a sham. Why? Because it is a one-time only tax. Executive compensation programs the world over have for years been designed to circumvent the tax man. Because France is taxing these bonuses next year, and not this year, this is what will likely happen, for example…

Companies will track the bonuses that an employee earns in 2010. Say the ABC Corp. feels that employee X has earned a million euro. Rather than awarding that million in 2010, they will award an amount less than the 27,500 taxation threshold, thus escaping the 2010 tax. Then in 2011 the million euro bonus will be paid out in full as “deferred compensation.” In other words, businesses will simply retool their bonus plans to read something like…”From here forward, employees earning bonuses greater than 27,500 euro will receive 5% of compensation earned in year 0. The remaining 95% will be paid out over future years at the discretion of the company.” Blah, blah.

In other words, the “50% bonus tax” by France is simply a way of placating an increasingly frustrated public, without doing a damned thing. Arghhh!

May I say something? Unless the system of executive compensation changes, my prediction is that we will have another economic bubble and recession within a decade. So long as there are people who are primarily motivated by money and they are awarded gigantic amounts of money for their work and the compensation plans do not monetize ethical behavior then there will be corruption. It is mathematical. And disgusting, too.

The beat goes on.

Jason