moral hazard

example

Aside from the issue of governments rewarding companies bad
business practices – i.e. bailing out hedge funds and banks who
made bad decisions by selling subprime mortagages as top rated
bonds, America encourages greed and mismanagement by
giving CEO’s of failing corporations huge bonuses at the expense
of stockholders and employees. Consider this, General Motors
is in the middle of a disastrous year where losses will be the
worst in the company’s history and thousands of employees will
lose their jobs, yet as a reward for his mismanagement, CEO
Rick Wagoner will take home and extra 15.6 million dollars in
bonuses for the great job he’s doing of running GM into the
ground. That teaches other future and present CEOs they will
be rewarded for bad decisions and immoral practices instead
of being fired as they should be or at least having to eat the
loss by losing their fat bonus. Just what kind of behavior is it
we are trying to encourage in the business world by rewarding
corruption and incompetence?

~ by judohobo on June 7, 2008.

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