There is no point to this post other than to start you thinking on a Friday morning. It's just something that has been in my mind for a few days and I thought I'd throw it out to the crowd for some discussion.
The Set Up…
We all know there is this little problem in the Gulf of Mexico – some oil is leaking out of a pipe a mile under the surface of the ocean. It’s going to cause some problems – and going to cost a ton of money to fix.
Now, we all know that something like offshore drilling has risks and therefore, to help cover the costs associated with “errors”, and because of a little thing called Exxon Valdez - we (the US) put in place an “insurance” plan of sorts requiring all oil companies, domestic and foreign who drill in U.S. waters, to pay into a federal bank called the Oil Spill Liability Trust Fund. Under the current law the maximum an oil company has to pay into that fund is $75 million. That fund is designed to pay for costs over and above the clean up (ie: economic and ecological impact of the spill.)
Now, the estimates for cleaning up the BP “problem” are going to be waaaaaaay more than a mere $75 million. The difference between the $75 million and the total cost is going to come from the US taxpayer.
There is an effort in Washington DC to create a bill that would raise the liability cap that oil companies have to pay for non-cleanup costs from the current $75 million to over $10 billion.
And, oh yeah… they want to make it retroactive so that the “new” law applies to the current BP problem.
While there is some discussion on the whether a bill such as this is constitutional – there is some support for it. In other words, some people think it is okay to hold someone (some company) liable for something that occurred in the past under a specific set of rules by applying a new set of more serious penalties established today.
The Question…
If I flip this discussion and say – we will pass a new rule that allows people to get a much larger reward than would have been earned under the old rule and make the award retroactive. Is this right?
An example might be that a Sales Person receives 1% of gross profit for all sales in 2009.
Now say sales went through the roof because of some change in the market and now we decide they should get 20% of gross profit. We change the rules, and reward them retroactively to the beginning of 2009 – increasing their award by a factor of 20.
Would you allow that?
What if the person was a CEO or some other senior executive?
Probably not. You’d say –
“Hey… you can’t change the rules to make it retroactive after you see what the results are. Stick with the plan. Change how we reward in the future but the past is the past.”
Now ask yourself – should the same thinking apply to penalties – say for an oil spill?
I know where I stand on retroactive awards and penalties but I’m more interested in your opinion.
Is it okay to retroactively punish someone? Is it okay to retroactively reward someone?
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