Lawrence Summers on Those Employee Bonuses – a Redux of the 1990’s?

Lawrence Summers made an interesting comments during a CNBC interview:

Former Treasury Secretary and Obama administration economic advisor Larry Summers said Friday that recent employee bonuses are stunts and not reflective of long-term hopes for prosperity that tax cuts are supposed to bring. "I think it's a gimmick," Summers told CNBC's "Squawk Alley." "I think in many cases the firms have to raise wages because labor markets are tight, and so why not curry some favor with the White House by linking it to the tax cuts."

During the late 1990’s we saw a temporary surge in demand for R&D personal that was driven by the internet revolution. A lot of the compensation for these employees came in the form of employee stock options. One possible rational for this form of compensation is had these companies raised their employee wages then it might be difficult to curtail compensation if the demand for their products and services fell. In fact we know the internet revolution did have a crash at the turn of the century and the issuance and value of these employee stock options took a hit.