The other thing to keep in mind is that the 'huge' bonuses usually aren't very large from an income statement point of view; if you bought an extra 0.5% growth (or savings), it was easily worth it.
As to why this is allowed, I think it's seen as a private transaction between well-informed and consenting parties, so there needs to be a compelling reason for legislation and regulation.
This is the board voting the board gets a pay rise.
Still a fuzzy measure, but it would at least give them better incentives.
It's hard to prove a counterfactual, but it's only worth it if said person is the only person who could achieve those results.
In this specific case (zone of bankruptcy) there are externalities so it’s not a purely private transaction. For that matter limited liability always creates the possibility of an externality and so creates a hook for government regulation.
I think this would quickly get complicated and have many unanticipated results; you might have situations where key employees start leaving when they think the company is going down, thereby causing a complete failure.
I mean, it's not allowed. Part of what we're talking about here is that companies are getting around laws against retention bonuses during bankruptcy by granting those bonuses a week before filing the bankruptcy papers. Society has clearly decided that we don't think this behavior should be legal, but it's hard to close all the loopholes.
It's their money, and their decision.
Where do you get off say "are WE going to allow it?". Who the hell are you?
This whole thread is people who don't understand the context of these decisions. The public has no say.
In the US yes, but it doesn't _have_ to be like that.
These people are spending their own money to turn the company around. Who the F is the State to tell them they are doing it wrong? Who the F are you to tell them to spend their own money differently?