Imagine for a moment that you own shares in a company. This company has had a history of disappointing financial results and hasn’t hit their financial targets for a long time. Nevertheless, you own a part of it and you hope that one day your investment will be worth something.
At the shareholders’ meeting last year, the CEO and Board of Directors put forth a proposal to bonus the executives based on a series of criteria. If they hit each of 5 targets, they would be given a bonus. At this year’s meeting, the BOD revealed that only 3 of 5 targets were hit. Nevertheless, the Board initially recommended that executives should get 75% credit on one missed target and 66% credit on the other missed target. After some uproar, the Board came back with a revised recommendation that the executives should get the equivalent of 3.66 bonuses, because they were close.
What would your reaction be? I can tell you what I would think. I would realize that this is a company with poor leadership and a Board that isn’t willing to do the hard things. I would take my money and invest it in a better company, because I would have a hard time getting any kind of return on my investment if I stayed there.
Moving from this hypothetical scenario to the real world, we are all shareholders in a government company that has done this very thing. As the Salt Lake Tribune reported yesterday, the UTA is giving partial bonuses for partially hitting targets. Not only that, but they are doing it while increasing the dollar amount of existing bonuses and asking for more money from taxpayers. This is the equivalent of a failing company putting out a capital call to all shareholders asking for more money, then turning around and using some of that money to pay the very executives who mismanaged the company into a position where it needed a capital call.
I have no problem with giving performance bonuses. I think they are a very effective way to tie performance and expectations together with rewards. At the same time, bonuses need to be given for actually hitting targets. By defining deviancy down and allowing bonuses for missed targets, the only message that is being given is that performance doesn’t matter. John Q Taxpayer will always be there and may make a little noise, but will be forced to pay more and more for less and less.
Instead of continuing with this farce, we as shareholders in UTA should expect more. We should be willing to invest in it further – but only if it hits its targets. It’s time to treat UTA like a public company. If they hit their marks, they get rewards. If not, they get penalized. This penalty may be from changing the management team, it may mean moving people off the Board, or it may come from reducing the taxes they can collect.
UTA needs to sink or swim on its own without coming back like Oliver Twist every time an executive needs a bonus or they need a new bus line to ask the taxpayer for some more. Give us management who hits their targets and then we can talk.