The ideology of executive bonuses: an historical perspective

This paper seeks to add historical perspective to the contemporary debate concerning the efficacy of executive bonuses. That debate has become particularly significant in the USA as a result of the recent economic collapse and the federal government's Troubled Asset Relief Program, turning the government – at least temporarily – into a shareholder of numerous companies.

The article is primarily an intellectual history of an idea: that executive bonuses are required to achieve top performance. The main primary source is two sets of articles from the Harvard Business Review from the 1930s and the 1950s. These are supplemented by other primarily and secondary material.

Arch Patton, a McKinsey Consultant and the most published author in the Harvard Business Review during the 1950s, constructed a defense of executive bonuses based on ideology rather than empirical evidence.

Constituents of the current debate on executive bonuses should be aware of the degree to which statements of support for efficacy are often presented as universally and exclusively correct which may result in distortion and concealment of real interests.

Despite the ubiquity of executive bonuses, no study has looked at the historical roots of the debate. Agency theory, which is presented as a rational and legitimate argument in favor of such bonuses, fails to address the historical context in which bonuses actually took root in corporate America.