I recently heard about a company that underwent layoffs and then awarded bonuses as normal anyway. That’s what you charitably call “bad optics” in corporate speak, but to the layman it’s simply unhinged behavior.

From the perspective of the CEO it seemed very rational. That’s because it was the inescapable outcome of a series of previous decisions that they may not have even actively participated in, and now they have finance & legal whispering in their ear that they will create unacceptable risk if they don’t do the “unhinged” thing — in fact, that is now the “safe” thing. 

This is how you learn your CEO has no leadership skills — rather than navigating through the risks to meet the ethical & moral platitudes they have espoused, they fold. No one can “walk the walk” after agreeing to only step on the approved footpath stones.

So how did it happen? I can guess.

In a mature company, bonuses are signed agreements based on specific metrics & baked into the annual financial model. If you do X thing to Y level, you get Z dollars. There could be thresholds and scales, but it’s basically a math formula everyone agrees on (read: your boss typically dictates). This both gives the employee insight into their final compensation for the year and gives the company legal cover in case of a dispute. It also creates financial predictability for the company by scaling payouts with (presumably) available cash.

Layoffs are done for basically two reasons: Large public companies use it as virtue signaling for the stock market; in all other cases, an executive was very bad at predicting something. It could be demand, costs, global events, or even interest rates. Point is, they goofed, and they are going to top-down externalize the cost of their mistake into your faces. 

But, oops, they signed these pesky bonus agreements already. You may have already jumped to the obvious questions: 

1. Why wouldn’t you write all bonus agreements to expire if layoffs or other financial emergencies happen? To rank-and-file folks, those bonuses may be a significant part of the compensation they were expecting (e.g. sales), so now you’re following a layoff with a pay cut. 

2. Wouldn’t it be better to negotiate forgoing bonuses to retain more workers? Yes! But that would include rank-and-file folks in decision-making, which is anathema to most corporate executives. It requires leadership skills they lack and they cover up that deficit with tight control.

3. Wouldn’t it be better if at least the bonuses of the executives who messed up and caused a layoff were skipped? Shouldn’t that be in exec contracts at least? This is where I tap the sign again: Leadership skills required. Why would they sign themselves up for accountability no one demanded?

None of that was set up, so now when backs are against the wall they want the safest path possible: pay the bonuses and layoff more folks than strictly necessary to cover it with padding. Happy lawyers, happy finance, happy board.

It was also bad planning, faulty predictions, and absent leadership — but they get their bonus anyway. It’s completely unhinged and exactly as designed.