These bonuses are payable regardless of performance and are calculated at 100 percent of 2007 compensation for all employees except senior management, who receive 75 percent of 2007 compensation. The amount is payable unless they are fired with good cause, resign without good reason or fail to meet performance standards. For those hoping that these employees could now be fired, "good cause" is defined in the agreement as a very high standard. This is normal for these agreements.
Megan weighs in:
It's not clear to me how contracts have come to be written that way--after all, they weren't always handing out taxpayer money, and the big bosses who wrote those contracts were also sizeable shareholders in their firms. The result, however, is that all of the employees holding these sorts of contracts have vastly excessive incentives for risk taking. Perhaps some of them were taking big risks on the moral hazard of having Congress bail them out--but as Lehman shows, that was never a slam dunk. And I doubt a handful of these traders and money managers thought they were betting the firm. Most of them thought they were gambling on their own careers--just not very much of a gamble.
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