The problem about CEO bonuses is not one of amount but one of disconnection between their amount and real performance and financial health of the company.
Example: I manage a company soundly and am paid a million dollars a year. After two years of my management it is in good, very good shape and I have got two millions.
But assume that my contract is such I can get ten millions in the first year even if that means that the second year the company will fold. Since I am in business to make money and I am not playing with mine (ie I don’t own the company) the rational decision is go for broke, buy toxic assets, “leverage” beyond reason, get in debt to the ears (1), anything who can create a spike in stock valuation (or more exactly in my pay) and once the company folds retire to the Bahamas and enjoy life. So given that CEOs are not playing with their own money it is crucial to find a system where CEO remuneration is linked to long term perspectives and health instead of to stock valuation spikes. Otherwise we will time and again find they have run their companies into the ground.
(1) Leveraging works both ways. If you pay 90% of an asset through loans and the asset goes up 10% you have doubled your capital (minus interest), but if it goes down by 10% you have lost all your investment and if by 20% you owe an amount equal to your initial investment.
