Bonuses For AIG

Bailed-out AIG doles out $165 million in bonuses.

I don’t think this is quite right. Frankly, I find this rather disturbing. Does it seem to anyone else that a “bonus” should be a preferential payment due for some especially good work, or at least an acknowledgment of competence at a difficult task?

But this seems quite the opposite. If I recall, these fellows being so handsomely rewarded did not, in fact, deserve special compensation for a job well done, since the job was done, well, rather poorly. It would be something like awarding General Santa Anna for his brilliant military skills, or Nero for his city management of Rome. Not to put too fine a point on it, but I have some difficulty in seeing how such bonuses are rightly deserved.

Heaven knows, I don’t want to seem radical in my views, but it occurs to me that some action might well be taken, a stern talking-to is certainly in order here, perhaps even…dare I say it?..a suggestion to willing ears that perhaps some of that money might be returned? No doubt, they simply weren’t aware of these facts, but now that they know, they will blush with shame and insist on returning the money.

But I don’t want to get too extreme here, we are talking about nice white men in well-tailored suits here, it wouldn’t do to get too distraught about all this. Has anyone a calmly reasoned and just solution, that doesn’t involve disembowelment?

It’s way past “Not quite right,” it’s a goddamned disgrace.

However, my understanding is that this particular ship has sailed; the bonuses in question are contractually obligated payments, agreed to a long time ago, long before the crisis. Whatever bailouts it gets, AIG still has to honor the contracts it signed, and most of the bonuses included in the $165 million are going to employees, not directors and such.

I don’t care so much that they’re honoring bonus deals they made years ago so much that I’m concerned they haven’t sent anyone to prison yet. It’s difficult for me to grasp that they sent Martha Stewart to prison for a financial “crime” about one zillionth as large and as malicious as the shit some of the honchos of these huge firms have pulled, but none fo the honchos have yet been imprisoned. Or shot.

This is one of those few times a lynch mob would be performing a public service.

Oh, my, Mr. Jay, please, calm down! This is most un-Canadian of you! Rather like the extravagantly emotional and wild-eyed Minnesotans. Please, lets maintain some calm decorum here. We’re only talking about a few paltry billions here, looted from the retirement savings of people who really should have known better. Why didn’t they spend a few years at business school, rather than just flinging their savings away?

As for contractual obligations, TG, IANAL, but does such an obligation extend coercion to the recipient? Do these people face onerous penalties if they refuse to accept ill-gotten gains? Are they likely to be snubbed in Aspen, or cut dead in the Hamptons?

I don’t pay much attention to financial events, but aren’t these bonuses essentially funded by the bailout? Isn’t this taxpayer money?

It appears I may have spoken too soon. According to an update from Talking Points Memo (linked to the Wall Street Journal)…

That’s quite different. I am inclined to accept TPM’s view of this, that this makes it all a bit worse.

Bonuses can actually be perfectly justified, both among the rank and file and among the executive leadership. I am not commenting on this case, but from an objective standpoint they are probably necessary. What you have to realize is that AIG is a conglomeration of separate companies, each largely independent from the other with separate goals and expectations. Performance based compensation is vital to reward success and attract talent.

So, picture yourself as the guy who heads their retail life insurance arm. As your parent company gets wave after wave of negative publicity, you continue to lead and find ways to compete and increase life insurance sales in your division. You are probably already looking around to see if you should be leaving the company. Most everyone here seems to think they should cut everyone’s pay, eliminate their bonuses and cancel the annual conference at a nice resort. That is fine, and I understand that emotional reaction, but as this company struggles to survive it won’t help that their best employees have little reason to stay on board.

I am quite certain that on this board there is little mileage in the fairness argument, but at the end of the day it was one part of AIG that blew up the rest of the company. For those people, and anyone in a postiion to know what they were doing to get bonuses is outrageous. To take bonuses away from the leaders of their other successful divisions that met their goals, had nothing to do with what happened to AIG and were profitable is unfair and destructive of the government’s interest. They own 80% of the thing after all.

Your bailout money is going to pay salaries and benefits and paper to print AIG’s brochures. Bonuses based on performance standards are not fundamentally different from those things, especially in divisions that had nothing to do with the meltdown.

I think that if the government is serious they should put AIG into involuntary bankruptcy and pass a law that allows the receiver to not pay due bonuses or commission over a certain amount if money is owed to the government.

I don’t know why I’m the target of your sarcasm as if I was excusing theft, nor why you’re implying that I’m in league with the guys on CNBC who’re blaming ordinary people for the sins of financial insiders.

I’m pretty sure the bonuses include payments to a lot of folks who aren’t rich. If my employer was playing shenanigans with money up in the corporate offices (unlikely given the company’s size and type, but play along for a moment) does that mean I, an ordinary family man, should be shafted out of a bonus I’m entitled to?

I’d like it if the bigwigs gave the money back too, and frankly AIG’s directors are utter scum if THEY’RE accepting any of this money. But to be honest, giving back one tenth of one percent of just AIG’s bailout isn’t going to solve anything. What would be really nice would be to send people to prison over this. Just a few days ago I saw clips of the Mad Money guy openly, on tape, explaining how to play fast and loose with the SEC, and if that’s what one guy will admit to on tape you know shit a hundred times worse was going down behind the scenes. Punish those people, otherwise this is all going to happen again in another fifteen years or so.

fruitbat, I get what you’re saying about performance-based compensation. In a way it’s just making part of someone’s pay contingent on performance without adding it to the base. But at the executive level someone is supposed to be putting compensation *at risk *to deliver results. An executive, even of a large corporation, needs to be sure he picked a fish that isn’t rotting from the head. Rank and file, even management, I can see this as just part of someone’s pay. Executive leadership, sorry, they failed. They may be looking to jump ship, and some of them may even succeed, but there are enough people unemployed in the financial industry right now, is anyone really beating down the door to raid AIG talent?

I am in the industry and AIG’s talent is being decimated. From the mid level, I would say most is already gone. At the higher level I can’t comment as much, but I don’t see why it would be different. People are leaving as quick as they can because there is just no reason to stay. Politically AIG can’t reward them for their work, business is hard to come by due to the sullied name, and the most talented can find work elsewhere.

It helps to understand that AIG is organized not as the cohesive company you imagine. It is a series of sub-companies that each report back to the parent organization. Each sub-company has little to no idea what the other parts do. One of their most profitable business is in leasing and ensuring aircraft. So that company has a president who is part of the larger leadership. He had absolutely no way of knowing what the other part of the company was doing, in fact financial products are way out of his area of expertise. So if this guy delivers the aircraft leasing division to its best year ever it is neither morally or practically right to pull his bonus and treat him as a pariah for what other sub-companies did.

So I guess what I am saying Harriet is that many people did deliver results. AIG was only clearly rotten in hindsight. I think this is why they are awarding bonuses and then pretending they just couldn’t help it. They see the talent leaking away and politically can’t stop it, but practically must do something.

If AIG went out of business ,who would have paid the “earned” bonuses. There would have been none. They got taxpayer help and now they have to pay on a previous agreement. I don’t buy it. It is time to take over the management. Their sense of entitlement is appalling.
A lot of banks and financial institutions have gone under. People are graduating school with relevant degrees every semester. The idea that they are irreplaceable is illogical. There is a talented base that can replace them easily.

I’m not speaking for luci, but WHOOOOOSH!

No need to raise voices here; let’s maintain a gentlemanly decorum throughout.

Of course, the case of Ms Stewart is QUITE different. She was a self-made wealthy woman and as such, needed to be taught a lesson. We can’t have that.

(seriously, sometimes I think her crime just wasn’t big enough or audacious enough–that’s why she went to prison).

Why no one has been indicted yet escapes me.

Except that, according to this article, the bulk of the bonuses are going to the Financial Products division, “the unit of the company that sold credit default swaps, the risky contracts that caused massive losses for the insurer.” So the guys who contributed to fucking their company and our economy are the ones getting paid with our money. I understand that AIG is contractually obligated to pay these bonuses, but I can’t help but get a sickeningly angry feeling when I think about it.

If this is what talent calls results, we need more monkeys.

If the various subdivisions of AIG are indeed the separate business entities they claim to be, the bonuses will be coming out of their respective coffers and they should not be recieving any bailout money in those divisions. If the company is compartmentalized as you claim, I would imagine they could have let the dying subdivisions do, so and just keep up the ones doing ok.

But this hypothetical “he” benefitted from access to the corporate capital (or at least line of credit) that came from the misdeeds of others. If his compensation isn’t really and truly at risk, then it should be lower across the board.

Plenty of people have been doing their own jobs just fine when their companies failed. Because their companies weren’t in line to get a bailout from the taxpayers, they didn’t get a bonus. There is no whining about “it’s not fair” in business.

Tell the “talent” to get in line. Once the government gets its money back, they are welcome to do their worst. This is like giving someone a bonus for building a balsa and tissue paper house because it came in under budget, while ignoring that the first stiff breeze would destroy it any value it ever had.

So the bonuses are justified as a means of retaining qualified people, but the people are leaving anyway? Sounds like all the more reason not to pay the bonuses.

What interpretation of that post doesn’t imply I’m being soft on the ne’er-do-wells? Taken seriously, which it isn’t, it’s absurd; taken sarcastically, it appears to be saying I’m not harsh enough. I suppose it’s not always easy to interpret elucidator’s words because he pretty much never says anything seriously, but it didn’t seem very friendly either way.

OK, elucidator, walk me through how this would work. I’m Ted Smith, an AIG account manager. My compensation plan this year says something like, “Perform X and you will receive a bonus of $50,000.”

Now, I have performed X. That’s what the company agreed to pay me. In fact, I took a lower base salary because I knew I could meet ‘X’ and get the bonus.

Now the management has screwed up royally and had a choice between declaring bankruptcy and asking for federal aid. If they declare bankruptcy, they can avoid paying their legal obligations, and that includes the money they owe me. But that will mean they have top fire a lot of people, and many more people will lose money invested in and through the company. It’s to avoid this that the government gives them bailout money.

So, with the bailout money, they are supposed to pay their legal obligations. On what basis do you now contend that they can avoid paying me?