Bailout Money Awarded to Major Bank Executives Their Impacts on Utilitarianism and Deontology
Price
TUI University

Abstract
This paper explores two published articles that report on banks receiving billions of taxpayers’ dollars awarded from the government known as the Trouble Asset Relief Program (TARP), who in turn paid their top executives billions of dollars for bonuses. TARP is a program to assist in the stability and strengthen its financial sector by paying for bad mortgages and other trouble assets. In order to prevent economic collapse, the Bush administration changed the programs goals. (Gold, 2008) Using the TARP funds to support and pay off executive’s bonuses poses a moral dilemma within society, which I will later discuss in the paper. The purpose of this paper is to answer the question, Should top executives of the major banks that received bail-out money be allowed to receive large bonuses? I will present my personal view on the matter using the bases of my values, beliefs and research that I have done on the topic. In addition, I will explain how bailout money awarded to major bank use for executives bonuses impacts on utilitarianism and deontology.

Bailout Money Awarded to Major Bank Executives and their Impacts on Utilitarianism and Deontology The United States began experiencing the recession during the early years of 2000. On September, 11, 2001 a tragedy in New York City occurred when the World Trade Center Towers were struck with airplanes, which contributed more to the recession the United States is facing. With the economy spiraling downward, millions of U.S. citizens are facing unemployment and job losses, which created a daisy chain effect, creating many home foreclosures, high increase of depth, homelessness, bad credit and more. To make matters worse, prices continue to soar for food, gas, rent and much more that are essential to an individual’s lively hood. Major banks were heavily affected from home foreclosures and U.S. citizens declaring bankruptcy leaving them with substantial financial losses. In order to provide stability within the economy and strengthen the financial sector, the Obama Administration contributed billions of taxpayers’ dollars known as the Trouble Asset Relief Program (TARP) to major banks and other agencies facing bankruptcy. With the government’s intent of stabilizing and repairing the economy, banks misused the funds to pay billions of dollars of bonuses to executives and other high ranking officials. This paper examines the two articles, Bloomberg: Banks Paid $32.6 Billion in Bonuses Amid U.S. Bailout (Update 4) and The Washington Post: Despite bailout, bank chiefs received bonus. The purpose is to explain if it is justifiable for banks to have paid top executives bonuses. Should top executives of the major banks receive bailout money be allowed to receive large bonuses? My response to that question would have to be neutral. I would say yes, with the belief that those bonuses are not being paid with the TARP funds. Majority of bonuses are incorporated into executives contracts, therefore, executives are entitled to it. On the other hand, I would say no because banks received bailout money which tells me the failure is due to the improper work ethics and work performances of the executives. The bailout money should not have been allowed to be used to pay for bonuses. Banks impose large interest rate and heavy penalties to U.S. citizens borrowing money from their institution. Apparently, the bank system has been impregnated with individuals who possess a lack of ethical professionalism, which have no regards to any individual’s personal situation. That amounted to banks creating additional fees to borrowers creating more depth for individuals. Therefore, why should the people and the general public care if top executives receive a bonus? Like all other businesses, banks are in the business to make profits. With taxpayers declaring bankruptcy and foreclosures, there are no profits being made. The term bonus has lost its actual intent over the years as did the term tips. In the past, bonuses were given to individuals who did superior work and who went beyond the scope of their job duties and expectations; it was a surprise. Bonuses were meant to be used as an incentive or award not an extra payment on top of the salary. Amazingly, some bonuses paid to individuals exceed the amount of their regular salary. “Depending on seniority and performance, bonuses for traders, bankers and executives can be a multiple of their salaries, which range from about $80,000 to $600, 000.” (Freifeld, 2009) How is that possible? Nowadays, bonuses are expected to be paid even if the job performance is satisfactory. That is only possible if anyone in a business signs a contract that spells out their rights and duties of the employee and what they are entitled for payment from the employer, otherwise known as is known as contractual rights. If the bank employee performance was satisfactory, a bonus should definitely not be given especially if the government had to bail out the institution. Basic salary rates are paid to individuals for providing a certain level of service, then of course time and years spent within an organization increases the salary rate. If an employee fails to provide a level of service the contract has been breached and no money is due to the employee and perhaps that individual should be terminated. “Most of us sign on to do job, and we do them the best we can,” said Mr. Frank, Massachusetts Democrat. “We’re told that some of the most highly paid people in executive positions are different. They need extra money to be motivated.” (Gold, 2008) Personally, I believe if any organization needs assistance from “big brother” individuals at the top of the “pyramid” should ensure they are the stewardess of the government funds, failing to do so will cause a domino effect in society. How can we reward that? “As this executive put it, ‘employees should share in the upside when overall performance is strong and they should share in the downside when the overall performance is week.” (Freifeld, 2009) Taking precautionary action i.e. telling the individual they will lose their job for poor performance could have positive results in the increasing job performance of the employee. Currently, with job losses increasing, I would suspect an employee would be more concerned with retaining their job verses a bonus that is owed.
“When the banks did well, their employees were paid well. When the banks did poorly, their employees were paid well.” Cuomo’s office said in the 22-page report. “When the banks did very poorly, they were bailed out by taxpayers and their employees were still paid well. Bonuses and overall compensation did not vary significantly as profits diminished.” (Freifeld, 2009) To me the key phrase in this statement is “bailed out by taxpayers”. We the people, the taxpayers paid the banks bailout money without any choice or say in the matter. Only hoping the banks would use good judgment and have good intentions to help with the economic crisis. Instead, we were betrayed and outraged finding out the money was used to pay individuals who are already wealthier than most, a bonus. If the executives had any values, they should have known accepting bonuses from the TARP fund was morally wrong because the taxpayers were paying them. Their institution did not earn that money, it was granted from the government for assistance. Therefore executives are not entitled to any payment from TARP funds. Perhaps this is one of the reasons why federal employees are not compensated as well as the private sector for the same type of work done. Knowing that the economy is in a fragile state, the banks should have not spent billions of dollars on bonuses. For the banks to hand out bonuses, I trust was a moral and ethical violation. If it helps more than it hurts, its right; if it hurts more than it helps, it wrong. Executives accepting large bonuses did not assist with the restoration of the economy and the financial sectors, therefore it was wrong. Under the utilitarian rule, was the bonus paid out for the greater good of the economy or was the bonus paid to keep the rich richer and the poor poorer? For arguments sake, banks may argue that they gave those bonuses to their executives in order to retain their expertise and fulfill a contract. In addition, that money was due to them. I would argue if their experts truly are needed for their expertise, why did they lead the bank into accepting assistance from the government, are they not doing their job well? If the executives in charge truly deserved a bonus for their work, major banks like Citigroup and Merrill would not have needed assistance from the government. “One senior bank executive noted recently that individual compensation should not be set without taking into strong consideration the performance of the business unit and the overall firm,” according to the Cuomo report. (Freifeld, 2009) Frankly, I believe greed has filled the minds and hearts of the executives. Deserving a bonus or not, individuals in high positions wanted to ensure they were taken care of first financially to maintain their lavish lifestyle. Let’s face it, no matter who you are or where you are from, everyone would love to be financially stable and depth free. Perhaps the meaning of ethics for the banks differs from my own; it is just business nothing personal in their mind. It becomes personal when the money that is paid to top executive personnel is with taxpayer dollars.

Discussion Both articles depict the fact that executives and bank chiefs received bonuses despite their organizations receiving bailout funds. Only one study was presented in the Bloomberg article called “No Rhyme or Reason: The ‘Heads I Win, Tails You Lose’ Bank Bonus Culture.” The government is trying to intervene and recoup most of the money given to individuals by placing large taxes on them. Most spokesmen for each company that received bailout and paid billion dollar bonuses to select employees’ money refused to comment on the matter. “The AP compiled total compensation based on annul reports that the banks filed with the Securities and Exchange Commission. The 116 banks have so far received $188 billion in taxpayer help.” (Gold, 2008)
There is a division between the private and public sector. Executives that accepted the bonuses from the TARP funds angered the public. “Citigroup and Merrill Lynch suffered losses of more than $27 billion at each firm, the report said. Yet Citigroup paid out $5.33 billion and Merrill $3.6 billion in bonus.” (Freifeld, 2009) The most important thing is to reinstate regulations so that the so called free market is a disciplined one and a fair one and not run by the greed and self entitlement of the people within the industry.
Bonuses are not inherently wrong, but they were never meant to be something expected. Top executives are accustomed to lifestyle and their bonus plays a major role in it. Overall, TARP funds should not have been awarded for bonuses to executives.

References
Freifeld, Karen. (2009, July 30). Banks Paid $32.6 Billion in Bonuses Amid U.S. Bailout
(Update4). Bloomberg. Retrieved July 16, 2010, from http://www.bloomberg.com/apps/news?pid=20601087&sid=aHURVoSUqpho
Gold, S. (2008, December 22). Despite bailout, bank chiefs received bonuses.
The Washington Times. Retrieved July 16, 2010, from http://www.washingtontimes.com/news/2008/dec/22/despite-bailout-bank-chiefs-received-bonuses/