Listen to the people - those executive bonuses are toxic

The management forecast that in the year to June the group would experience negative cash flows of $172.8 million. Despite the losses it would still pay $42 million in bonuses.

Much attention was given to the numerous deals between Allco directors and the company before its demise - deals that lined the pockets of the likes of David Coe and Gordon Fell with money that administrators will ultimately be trying to get back.

But even in its crippled state Allco was still budgeting on big bonus payments to executives. And the bonuses that had been paid before Allco was declared insolvent are not deemed recoverable by the administrators, who believe they were paid in an employee capacity.

When the administrators ultimately come to sort out the entrails of Babcock & Brown, bonuses will also loom large.

There were reports, even before administrators were appointed to B&B last Friday, that there had been disputes with the bankers about the bonus payments within the group.

In the case of B&B, many of these revolve around retention payments - that is, executive pay typically held back by the company and paid out in instalments after an executive has been with the firm for a number of years.

In some companies they will only be awarded if the executive retires and does not seek employment with a competitor.

However, the value of this bonus retention pool can be in the hundreds of millions of dollars and, with lenders anxious to extract maximum recovery, they will understandably be in competition with potential bonus recipients over the limited funds to be dispersed.

The fight between lenders and executives in B&B will be decided somewhere down the track.

Executive pay - albeit via bonuses or some other means - is the hottest topic in town. People are suffering serious financial pain, and the top end of town is feeling the backlash.

Barack Obama is the lender of last resort to various financial failures in the US and is feeling the heat generated by the country's taxpayers, who are understandably furious that the billions of dollars they are paying to bail out the likes of AIG is being diverted into retention payments for its executives.

The Administration apparently had no choice but to wear the flak of its bail-out money being channelled into AIG's $US165 million ($250 million) retention payments.

Toxic loans are one thing. Toxic payments to executives that profited from wanton disregard for probity is unpalatable for shareholders and taxpayers alike.

The Prime Minister, Kevin Rudd, has also felt the need to weigh into the debate in Australia about excessive payments for failure, even though at this stage it is not taxpayers but shareholders (and potentially lenders) who have suffered.

Rudd's solution, to date, is aimed only at institutions that take deposits and are governed by the prudential regulator. It is aimed at forcing these institutions to increase their capital requirements to cover any future payments to employees.

But it a narrow solution to a far wider problem.

The reality, though, is governments cannot legislate on executive pay, and regulators, to date, have not allowed shareholders any say either.

For example, a few years back it was deemed that non-executive directors should not receive lump sum payments on retirement. In response they were rewarded with increased directors fees to compensate.

Until recently boards have been happy to ignore community concerns about excessive salaries as profits have been generally rising.

But in the current environment, boards have generally sniffed the poor odour associated with generosity and reined in the largesse.

Still there are those who slip through the net. The Rio Tinto annual report published yesterday divulged a payment of up to $15 million for the outgoing executive director Dick Evans.

Evans was in charge of Alcan when Rio bought the aluminium producer in 2007 at the top of the market. It was the deal that landed Rio in its debt noose and in need of a controversial rescue from Chinalco.

Then again, as the seller of Alcan, perhaps Evans is the only executive worthy of a bonus.