Bonuses are in the news again, but this time the focus is on the government. The Times Picayune quotes a spokesman from the Office of Thrift Supervision on bonuses for government officials:

“These [i.e. the bonuses] are meant to motivate employees, have them work hard. The economy has taken a downturn in recent years. I’m not sure that negates the hard work or good ideas of our employees.”

If this statement were read out of context, it would easily be mistaken for a defense of Wall Street’s bonuses. In fact it is a defense of bonuses given to federal banking monitors who failed to detect the escalating financial crisis.

As addressed in a previous blog post, politicians criticize bank executive bonuses arguing that their “obscene” rewards cannot be justified during a financial crisis. But government fails to apply the same standard to itself. The Times Picayune reports “the U.S. government handed out millions of dollars in bonuses to regulators at agencies that missed or ignored warning signs that the system was on the verge of a meltdown.”

Despite frequent criticisms, bonuses are a valid form of incentive. The problem arises when they are funded with taxpayer money and appear to have no true link to performance. Government officials could make a more persuasive case against Wall Street for its bonus system if they reformed the public sector compensation system first.