Few automakers are managed as carefully and thoughtfully as Toyota Motor Company – after all, Toyota didn’t become the world’s largest and most profitable car company by making bad decisions. This year, astronomical gas prices followed by a global financial crisis have conspired to make 2008 one of the worst years ever for the global auto market (especially the US market).

Sunday, Toyota announced a decision to eliminate all executive bonuses for the current year. While this decision will save Toyota more than 1 billion yen (about $11 million dollars), it’s not really about cutting costs. The truth is that $11 million is a drop in the bucket for a company of Toyota’s size – paying out these bonuses (or not paying them) will have a nearly insignificant impact on the bottom line.

Many companies, faced with the realization that executive bonuses won’t amount to much, would likely pay them out anyways. After all, Toyota is losing $1.1 billion in the last half of the year, so what’s another $11 million? Many would argue that Toyota executives don’t deserve to lose their bonuses – they’ve done nothing wrong. Why should anyone, executive or otherwise, lose his or her bonus due to circumstances beyond their control?

Some argue that paying out a bonus regardless of the overall performance of the company sends a bad message. Executives are the rank-and-file leaders and decision makers, and they must understand their performance is tied to the performance of the company overall. Regardless of circumstance, regardless of individual performance, the success of each individual executive depends on the success of the entire company.

Many people believe that employees must understand that bonuses are never certain. The use of the word “bonus” should be enough to convince employees they’re not entitled to this form of extra annual compensation, but that isn’t the case. Many US automakers justify the practice of paying bonuses during non-profitable years by stating that “executives will quit if they don’t receive their bonus.” Clearly, these execs have come to expect a bonus.

Either way, Toyota’s decision to suspend bonuses in a bad year sends a clear message that they don’t pay for poor performance…but is it fair?

Let’s say that you’re a top-notch executive working in the HR department at Toyota and completely unrelated to the day-to-day business of selling new Toyota vehicles. Let’s pretend that you’ve done a great job this year and that despite your performance you’ve been told that you’re not getting your bonus because the economy tanked. How would you feel?

What do you think? Is it fair for Toyota to cancel all executive bonuses this year?

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