Performance after the fact at Jefferies Group …

Sometimes, a little candor can be refreshing. We saw some last week from Jefferies Group (JEF), the investment bank, when the company chucked some of its performance-based compensation to the wind, at least for 2009.

Ordinarily, Jefferies, like most companies, sets out performance targets early in the year. The idea is that bonuses get paid out depending how well the company, and executives, make their targets. “In the past, the board has established targets based on measurable performance criteria with specific weighting,” the company said in its proxy, filed April 6. That makes sense: You don’t really want companies painting bull’s eyes around the arrows.

Then the proxy continues:

“However, given the extreme volatility and uncertainty of the financial markets near the end of 2008 and beginning of 2009, the Compensation Committee did not believe it could establish meaningful objectives at that time. Accordingly, bonus amounts for Mr. Handler and [Executive Committee Chairman Brian P.] Friedman were not established until the end of 2009 and were not based on specific performance criteria or targets. Instead, the Compensation Committee reviewed our strong year end performance at the end of an extremely difficult year and awarded bonuses to our top two executives based on historical performance in 2009.”

In other words, Jeffries painted bull’s eyes around the arrows, as well-shot as those arrows may have been.

This isn’t just a matter of best-practices for Jefferies shareholders. Because bonuses awarded this way are effectively arbitrary — or at least, made based on perfect hindsight — the payment to Chief Executive Richard Handler didn’t count as performance-based pay for tax purposes. That means it wasn’t tax-deductible, and instead of the $6 million he got before taxes, it actually cost the company north of $8 million. (See the full rules on performance deductibility to get all the nuances.)

We like this approach somewhat better than those companies that change performance goals mid-stream, of course. So points for honesty. But it might have been even more refreshing if the company had concluded that performance is as performance does, and that incentive awards should follow suit.

Image source: respres via Flickr.