Robert Rubin: "bonus was something of a misnomer" (an insider's view on bonuses)

Speaking at an economic conference this past week, Robert Rubin the former U.S. Treasury Secretary and chairman of Citi Group, responded to a question about whether Wall Street bonuses had contributed to the financial instabilities by saying this:

"Bonus was something of a misnomer." - Robert Rubin

Huh?

While I don't have the full transcript of his remarks, this notion that the term "bonus" is not properly understood is a concept making the rounds in CEO circles.

I recently heard it said that Silicon Valley executives needed to preserve bonuses while cutting salaries, retirement benefits, and even jobs.

What's going on here is a 2-tier system of compensation. Companies can hide true executive and high-earner compensation by calling it bonus. But now that bonuses are being called out on the evening news and the public sentiment has soured, companies are scrambling to defend bonuses as not something extra, tied to financial performance, but as part of expected compensation.

In the case of Robert Rubin, he earned $126 million during his time as chairman of Citi Group. During this time he presided over the spectacular fall of the bank that is holding on only thanks to U.S. taxpayers. Citi can defend his compensation by saying it was not tied to financial performance of the bank but instead based on Mr. Rubin's performance.

But what exactly did Mr. Rubin do to earn $126 million or an average of $12.6 million per year? In his own words:

“By the time I finished at Treasury, I decided I never wanted operating responsibility again.” - Robert Rubin

So if Mr. Rubin didn't have operational responsibility as chairman of Citi, what exactly did he do to earn millions?

After Mr. Rubin's comments this past week, maybe now we know how he can justify earning that kind of money. In his mind it has nothing to do with performance, rather it is an entitlement if you are a Wall Street banker.