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Your Take: AIG Bonuses

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Oooooh yeah, you didn’t think I could let a Your Take go by after the uproar over AIG paying out their bonuses to the very division that caused their financial malaise, did you? :) Well, I couldn’t. I couldn’t because I’m curious what you all think of the situation and whether the public outcry was unfair or justified.

To recap, AIG paid out $165 million in contractually obligated bonuses to executives in the Financial Products division. The public, and subsequently the congressmen and women, were upset because AIG received billions of dollars in bailout funds to prevent a bankruptcy. People protested outside AIG headquarters in New York, Congress grilled CEO Edward Liddy, and Jon Stewart and Steven Colbert made light of it nightly on their shows.

If you are eager to carry a pitchfork, I invite you to read this letter from from former executive vice president, Jake DeSantis.

My opinion is that the executives should be able to keep their pay because a contract is a contract. The government knew about these agreements before they gave AIG bailout funds, they knew the agreements would have to stay if they wanted experts to stay (just look at the exodus at Merill Lynch following their “sale” to Bank of America), and all this “outrage” is just catering to the masses who are rightfully upset, just at the wrong people.

I don’t think the size of the bonuses is a good reason not to be upset. $165 million is still $165 million, regardless of the total bailout sum. Sure, it’s tiny in comparison but that’s not a good reason not to be upset. However, if you want to be upset, be upset at the people holding the purse strings.

I’m most disappointed in the politicians jumping on this opportunity to be so upset. Iowa Republican Senator Charles Grassley even implied (and then backpeddled) that executives should be more contrite, remorseful, and perhaps commit suicide. I know he didn’t really mean that executives should kill themselves, but the fact that he used so powerful language was because he was trying to win votes and get in on the feeding frenzy. That’s probably the most disgusting part about all this.

What’s your opinion on this? Do you think the anger is misplaced or right where it should be? While your opinion has probably already been formed, I recommend you read the NYTimes Op-Ed letter either way because it’s very eye opening.

(Photo: barrybar)

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54 Responses to “Your Take: AIG Bonuses”

  1. Sue says:

    The government rushed to save AIG since it was perceived at the time to be important to keep the system afloat. Perhaps they knew about the contractual bonuses, but expected them to be “tied to performance” or “tied to profitability.” As is often the case, events are complicated and it takes time to sort out the facts. The most important aspect is the integrity and intent of the parties. Contract or not, it is fundamentally wrong to pay huge bonuses on the backs of the taxpayers

    • Jim says:

      Perhaps they knew about the contractual bonuses, but expected them to be “tied to performance” or “tied to profitability.”

      I’m certain that lawyers read the contracts and understood them fully, they just didn’t anticipate the public outrage. I understand the outrage, I just think it’s unfair to level it at people who performed and were caught in the backlash because of the name on their business cards.

      This does set a precedent though, even if the 90% tax never comes through; no one will ever stay at a firm that is receiving a bailout in return for “deferred compensation.” That will only ensure that the government investment (bailout) will be lost… which is probably a bad thing.

  2. Patrick says:

    I completely agree with you Jim. The government messed up on this one and the fact that they are making the AIG officials seem like villains is horrible. Before handing out money next time, they need to be more careful and make a better contract. In my opinion, AIG should have never been saved in the first place. I know the government wants to make sure we don’t end up in a depression, but we need to let the companies that made bad moves go out of business for making those bad mistakes.

  3. Chris says:

    If you, or I, or anyone who valued their investment were to go and buy a company we would do something called “due diligence.” And in our “due diligence” we’d no doubt review employment contracts, especially those of high executives. So Congress decided to take our money (it’s not theirs, it’s ours, plus they and their friends apparently don’t pay taxes anyways) and buy a large part of a company with no due diligence. It is not the CEO’s behavior that is unacceptable, it’s the behavior of those we’ve entrusted with our money!!! Congress knows their constituents are pissed, but most are pissed at Congress (see polls re: bailout), yet they are playing slight of hand and villifying innocent taxpayers. If Congress wanted to, they could and should have put stipulations on the money. But they didn’t, and now they are “shocked”…give me a break. The spin coming from D.C. is sickening. The whole lot of them should be fired.

  4. Bill Bateman says:

    Unintended consequences can actually hurt us taxpayer stockholders.

    As a General Agent with AIG we’ve successfully recruited independent agents to sell AIG’s Group Dental, Life and Disability products. The division has no real financial problems.We make a very small 2.5 to 5 percent override on new business that is often as small as $100 a month but if we hit larger numbers we can qualify for as much as a 5% bonus. Since we only get paid when something gets sold the bonus is basically our profit with the override just covering our marketing expenses.

    When the bad news hit we stopped promoting AIG rather abruptly. Just a few weeks ago this division encouraged us get going again – then the bonus controversy hit.

    My colleagues and I can’t take a chance that we may invest significant effort in earning that bonus and have it taken away by politicians – we have other companies with comparable products and compensation.

    AIG loses the business and the stockholder – the American public loses.

    Politicians should have term limits so they could spend larger portions of their life in the real world hopefully noticing that actions have consequences.

  5. Advocate for the Disbled and All Misourians says:

    Just found this blog moments ago. Thanks for asking for my opinion.

    Last week, I faxed a letter directly to DC concerning an increase in fares for the disabled “Call-A-Ride” here in St. Louis. In some cases it will triple or more. The problem stems from a ballot proposition that did not pass in St. Louis County, and that’s where the fare line is being drawn–not far from the City of St. Louis border.

    How is this relevant? I was looking at the new White House site because I’d seen on CNN that it was a total overhaul. It’s smooth. But there was an “ad” on the right: “GET INVOLVED – Office of Public Liaison.”

    I worked around the corner from The White House for six years and the only thing I knew OPL for was sending out “Happy 100th Birthday” and “Happy…occasion of your birth, welcome new taxpayer!” letters. So I clicked it.

    It went to a simple mail form, but on the side was a aingle text link: OPL Staff. I clicked it.

    The head of the OPL is a former head of the Chicago Board of Transit. So I decided to see how they do it up there. And I wrote a three page letter, got a $7.95/mo virtual fax number and went at it. What I found is in the portions of my letter below:

    Pace Bus, which provides paratransit services in the Chicago area, says on its website that it will be receiving “roughly $33 million from the American Recovery and Reinvestment Act, better known as the Federal Stimulus Plan that President Obama signed into law recently, to fund infrastructure improvements.”

    So while Pace Bus is about to purchase 190 Paratransit vehicles, 58 Thirty-foot fixed route buses and additional vehicles for operational supervision, Metro in St. Louis is about to undergo drastic service cuts.

    (I’ll spare the details since it’s not my blog unless you want me to post the whole letter, but I’ll give you the end)

    But I’ll be honest–from where I’m sitting, knowing that The White House continues to fund corporations that are flushing my, and I’ll remind you, YOUR tax dollars down the drain, and also knowing that the bill excludes operations–funding that could keep disabled passengers from spending over three times what they’re now spending on public transportation to get to doctors–doesn’t economically stimulate me too much. It is most certainly making a big change–in how the disabled will use public transportation here.

    In fact, it is an unstimulating and disappointing change the administration could avoid. It is my hope that someone in the administration sees my point of view–undoubtedly shared, by many, many disabled persons like me here in Saint Louis City and Saint Louis County, Missouri.

    Sincerely,
    Adam Greenberg
    > A D A M <
    Advocacy for the Disabled and All Missourians
    (it just came to me that night)

    It went by fax to published numbers for:
    OPL, and also Joe Biden’s office
    Secretary of Health and Human Services
    Gen. Eric Shinseki, Sec. of Veterans Affairs
    The Honorable Senator Claire McCaskill
    (My Senator, big on Team Obama)

    None of the numbers for The White House, including the OPL number I found were good, although I did get a busy at Biden’s office one time. Everyone else got it. I added a few on top of that.

    While I certainly understand contractual liability, how many of us have had our bosses say “You know, it’a been a tough year. I know I promised you a bonus but I just can’t do it.”

    THAT’S MY TAKE ON THE VALUE OF THE AIG BONUSES.

  6. thomas says:

    Sure a lot of action on this thread. I wonder if people were this involved with the electorial process.

    Contracts were contracts, stimulus bill had the loophole to allow them. Had those who signed the bill read the 1000 pages, they would have known about this and, if they really are offended (before public outcry), changes could have been made.

    It is silly to see this type of uproar over less than 1% of 1% of the AIG bailout money. Where was the uproar over the stimulus bill or the omnibus bill with 8,000 earmarks?

    Groupthink is a terrible thing.

  7. Jim says:

    The actual contract for the bonuses is posted here:
    http://www.house.gov/apps/list/press/financialsvcs_dem/press031809.shtml

    Note that it is dated Dec. 2007.

    It is not a performance bonus in anyway and basically as long as the people stayed in their jobs and weren’t fired they’d get the money. There is a provision to lower the bonus pool due to revenue losses but that is capped so theres a guaranted minimum payout for the bonus.

  8. Advocate for the Disbled and All Misourians says:

    Not a performance-based bonus but a bonus provided they kept their jobs. Would the people getting bonuses fire each other?

    Statistics are great to whip out when making a point, especially if no one understands them.

    One percent of one percent of $85B would be $8,500,000–and that’s just the first bailout.

    My entire previous response, while it may have appeared to be about the stimulus bill, was actually a comment on THE CASH VALUE of the AIG Bonuses.

    In an article written just on March 16, 2009, in its “24/7 Wall Street” heading, Time Magazine’s website reada, in part, as folloqa:

    “AIG is turning out to be the most cumbersome and embarrassing of the government’s neighborhood improvement projects. Word made it out recently that employees in the division that caused most of AIG’s losses would be getting $450 million in bonuses. Some of the media put the number lower than that, but Congress and The White House have already complained loudly that any amount of money paid to an operation that helped undermine AIG’s viability should get nothing.”

    By my calculation, if you take that number and reverse the process–multiply that number by 100 then multiply THAT by 100, you get $4,500,000,000,000. That’s certainly not the amount of the bailout.

    You’re talking more a portion of the National Debt at that point.

    Again, I am well aware of contract law and the need to uphold it. The point of my comment is that it just seems ludicrous that the money is funding individuals, when an entire public transit system is about to face major setbacks to the disadvantage of Americans with Disabilities and the elderly. I’m willing to bet AIG has at least one or two disabled employees or they’ve got retirees who do NOT have huge retirement packages.

    Here’s an even simpler illustration of the solution to bonuses: “Dad, can I have five dollars to ger lunch, soda and ice cream?” and the response being “Well, here’s three. Get lunch. You need lunch. Lunch will cost you two dollars. Drink milk, it’s better for you. That will cost you one dollar. That’s three dollars. I don’t have any more in my wallet for you to get ice cream today, kiddo. Maybe tomorrow…”

    Even my four-year-old son understands that he doesn’t always get the perks of life. He may get upset, he may throw a tantrum over it.

    But he still won’t get the perk.

    And he knows if he finds a quarter to put it right into “Piggy” so that if he wants something later, he can get it, rather than turning right around and spending it.

    > A D A M <
    Advocacy for the Disabled and All Missourians

  9. Advocate for the Disbled and All Misourians says:

    Thank you for providing a link to the AIG contract. While I’m not an attorney, I’ve dealt with many, many contracts, and I’ve learned one thing: “If it’s not on the page it’s not on the stage.”

    I think I have to give credit to AIG’s CEO Ed Liddy. He’s trying to unscrew someone else’s screw-up.

    In a March 14 letter to Tim Geitner, he says “I do not participate in any AIG bonus or retention program, have never attended a single AIG sales event or conference and, before September, did not have any relationship with AIG. I was asked to serve by your predecessor in connection with the acquisition by the government of almost 80% of AIG’s outstanding shares. My only goals are to have AIG repay, with interest, to the maximum extent possible, the assistance the American taxpayers have given it and to continue AIG’s main insurance companies as strong, thriving businesses and contributors to the economy. My only stake is my reputation.”

    That’s all he has to lose–or gain–financially. So I give him credit for coming in as the cleanup. His name on the line.

    He goes on to say “The 25 highest-paid active contract employees at AIG Financial Products have agreed to reduce their remaining 2009 salary to $1. Salaries for this group range up to $500,000, and the average salary is in excess of $270,000.” I think that simply means they cut their tax liability on their salary, A tiny amount, a quarter- to half-million dollars, really.. They’ve made no concession to their bonuses.

    And right out of that AIG Retention Plan:

    3.04. Forfeiture of 2008 and 2009 Guaranteed: Retention Awards as a Result of Termination of Employment of Covered Person. If the employment (or, as applicable, consultancy) of a Covered Person terminates prior to payment of a Guaranteed Retention Award, the Covered Person will forfeit the right to such Guaranteed Retention Award in the
    following circumstances:

    (a) the Covered Person resigns without good reason (“good reason” means a material reduction in base salary, a material reduction in title, duties or responsibilities, or transfer to a geographic location that is more than 50 miles from the Covered Person’s current location)

    >>Which leads me to think outside the box–way outside, and ask, “Did anyone here purchase a home elsewhere and claim residence there for tax purposes in the time you’ve be eligible for the bonuses? If so, a case could be made that you’ve just forfeited your bonus, my friend. All of them, since the year you bought that house, if the same paragraph existed in all of the employee retention plan.”

    Just to pick the two most significant ones that come to mind, tax=free Delaware is a good hundred or more miles from New York and/or Connecticut–New Jersey is 150 miles long itself–and homestead-friendly Florida is over 1000 miles away.

    At the bottom of page 13 they had to sign they acknowledge they received and read it.

    Maybe not so outside-the-box. Ninewteen state Aggorney Generals–nearly one fifth of the country–has requested information from Liddy on the bonuses.

    Many people may not know this, as a lot has been seen in Washington and AIG’s letterhead–at least Liddy’s, indicates they’re in New York: “4.04. Governing Law:
    The law of the State of Connecticut shall govern the interpretation, application and operation of this Plan document.”

    In the last three weeks, CNN says Connecticut Attorney General Richard Blumenthal told CNN he believes there are grounds to challenge AIG’s payment.

    “These contracts were contingent on the company remaining in existence. This company would have ceased to exist but for the bailout with our taxpayer money,” he said.

    “So there are various grounds on which the contracts could be made unenforceable.”

    So now that we’ve got the playing field right, where’s Chris Dodd on all this? Says CNN: “Dodd told CNN on Wednesday that he was responsible for language added to the stimulus bill to make sure that already-existing contracts for bonuses at companies receiving federal bailout money were honored. A Treasury Department official told CNN earlier that the Obama administration pushed for the language.
    advertisement

    Dodd initially denied he had anything to do with adding the provision”

    Who’s to blame? No one knows for sure. How to get the money back? Have the Tre3aury Department set up a PayPal account. Get it all back, minus a small fee, by credit card. At least they’ll get Frequent Flyer miles out of the deal, which, to some people I know, are worth more than cash.

    One of the exec who just received six million bucks said through a spokesman he’s going to give it back. Didn’t say when. Hope he’s got it in sixty federally-insured up to $100K high-interest short-term CDs.

    I am sure many will have a beef with my post.
    BUT I DON’T WRITE THE STUFF–I JUST READ IT.

  10. Christine says:

    I agree with JR Moreau and some others that the word “bonus” is troubling. My dictionary defines bonus as “something that is given over and above what is expected.”

    My husband’s company (owned by him and his brothers) gives bonuses to their employees based on profits. Some years we make more than other years.

    This blog is the first I’ve heard of employees making $1/year and expecting to receive the remainder in bonuses. If that’s the case, there shouldn’t have been this big brouhaha. Congress would ask “why the big bonuses?” AIG would say, “our employees’ salaries were $1 plus $x in a contractual bonus.” End of story. Where are the media now to report this?

  11. Advocate for the Disbled and All Misourians says:

    I hate to beat a dead horse, but I believe that is correct. Making the entire thing a bonus and knocking the salary down to $1 removes taxes on and also hides, very easily, how much they’re acdtally raking in.

    It is an unfortunately legal way to skirt the salary issue altogether, alhthough if the salary was never more than a half-million, that was never reall he problem to begin with.

    The question that comes to my mind: If there’s so much money sitting around in unused funds allocated for projects, educational programs, etc. why doesn’t the government make them put together something that might facilitate getting that money? There has got to be a constructive answer to this problem without simply opening up a wallet and saying “Not only can you have the lunch, the soda, and the ice-cream but I want you to buy it for everyonw in rhw place, too.”


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