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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. I agree that a contract is a contract, and they should be able to keep it without being called out by the company or politicians. It sounds like the politicians had their chance to say something about these bonuses before they signed the bailout paperwork that referenced the bonus money. Only after the public caught wind of it and started to get noisy did the government step in and begin to take issue with it. I like the idea of executives who are not comfortable keeping the money donating it to private charities after taxes instead of giving it back…it’ll go to better use.

    • Jim says:

      I don’t think it’s right that these executives are receiving death threats over this, if you’re OK with a CEO earning hundreds of millions when the company loses money then you should be OK with a dozen executives getting hundreds of thousands when their divisions earn hundreds of millions, especially if you have a financial stake in the company!

      • Jim says:

        “if you’re OK with a CEO earning hundreds of millions when the company loses money”

        I’m not OK with CEO’s making fat paychecks while their company dies.

  2. I think the politicians have the right to be peeved about this. The country is in debt and they are goodwilled enough to bailout the company but the company still pays their executives 165 million?!?

    Well atleast the executives donated the money to good causes =)

    • Jim says:

      But the country has always been in debt, where was the outrage over the trillion we’ve spent in Iraq over false pretenses? Hardly getting the same reaction from people who seemed incensed over 165 million. Plus, these people earned these bonuses by earning AIG money… I’m happy to pay a guy a few hundred thousand to run an operation that generates hundreds of millions.

  3. tom says:

    Regardless of the contracts… There are divisions within AIG that are still profitable. Obviously the AIG-FP division still is. The Executives in charge of these divisions should still be compensated as if the company was not receiving bailout money. There is little an executive of one division can do to influence the actions of another division.

    There are two things that bother me the most about this: 1. Read the comments at the bottom of the NYT page. It’s sad, people still believe that this guy deserves nothing and his bonus should go to the “working class”. Very, very socialist mindset. 2. The House’s Target Tax on these bonuses. That is unconstitutional and possible illegal. That bill could potentially open some very dangerous floodgates, especially with one party rule in Washington.

    • Jim says:

      I didn’t know so that many were convinced to stay, repeatedly told their bonuses were safe (which means it was definitely on the radar), and agreed to $1 salaries.

      1. I agree, those comments are very sad because we’ve moved away from rewarding good performance (which this guy has shown). The guy went to work, he led a business that earned millions, I think he’s a “worker.”

      2. The House is just playing games, they know it won’t amount to anything but they want to be able to say, in the 2010 mid-terms, that they voted against AIG bonuses even though it’s meaningless. I don’t think the bill will ever get signed if it makes it to Obama’s desk.

      It’s becoming more and more evident in America that you can do well, you just can’t do too well.

  4. tom says:

    @Trevor,

    So… you’d be happy working 80 hour weeks, accepting $1 salary, making your division highly profitable only to get the shaft because the company was receiving bailout money? Not everyone getting bonuses caused this mess.

  5. Jessica says:

    I’m glad you included the link to the resignation letter. I think it does an excellent job of showing the other side of the story to those who are so quick to judge. I read it yesterday and sent it to all my friends who agree that they should be able to keep the bonuses and not be taxed 95% or whatever ridiculous tax rate they’re proposing for the bonuses (ex post facto, none the less). I don’t know anyone that would stick around a company that didn’t honor their salary and/or bonus contracts and we need people with knowledge of the situation at AIG to turn this mess around. Tough to do when people are sending death threats on your employees children’s lives to your company on a daily basis.

    The saddest part of the recession is that it’s causing a class warfare and this AIG bonus situation is a prime example. I’ve never seen such widespread hatred between the haves and the have nots in all my life. Everyone is looking for someone else to blame for the recession when all they should be concerned about is how to learn from what happened and how to move forward from where are.

    • Jim says:

      In the beginning I was upset too because mainstream media framed it as “the same division that got AIG into the CDO mess is rewarding their executives with huge bonuses,” when it reality the people who got them into the mess were already gone. The bonuses were going to the people fixing the mess, which is a totally different issue.

  6. aa says:

    Should some GM workers get bonuses too? Some divisions may indeed make $, LOL.

  7. Jeremy says:

    I haven’t been following this too closely, but I also had a problem with how the media and politicians twisted this story. If you listened to them you’d think that they were paying out bonuses to crooks for running a company into the ground. If that were the case, yes there is a lot to be pissed about. But as that isn’t the case, and these are RETENTION bonuses. It has nothing to do with rewarding bad behavior.

    Just ask anyone to be put in the same situation. Say your boss comes to you and says you know what, this company is on the ropes and we need to essentially close up shop in the next year or two. What incentive would you have to stay and keep working for someone that has a clear end coming? You have a limited future with the company, so you might as well start looking for work elsewhere that has a brighter long-term outlook.

    Obviously, AIG needs talented people to remain at the helm while this goes on and they can’t afford to find, hire, and train new people when they already have people within the company that can do the job. Unfortunately, you have to provide an incentive to make these people stick around, which is exactly what they did.

    Anyway, it’s a shame all around. It’s a shame the media jumped on this and didn’t stick to facts and explain what was really going on at first. And it’s a shame politicians used this as an opportunity to rally support from the public. If any of the people who are blindly calling for these employee’s heads had any idea of what was really going on or if they were put in the same situation in their own job, they would be singing a different tune.

  8. Tim says:

    I’m in agreement with you. I think the anger is completely misplaced and it’s looking like these employees are being completely let down by their company. Companies that have received bailout money have also continued to spend cash on lobbying efforts and you don’t see the same outrage from the public. I think this case allows people to focus their anger on actual people vs. a corporate entity so its more attractive to them. It’s sad though and I don’t think the employees and their families deserve to be singled out they way they are.

    • Jim says:

      That’s a great point about lobbying (GM? Ford?) that I didn’t think of, I don’t see mainstream media jumping all over that. Only recently did NPR do a story about GM/Ford executives getting a free car every SIX months. I knew they got a car as a perk, I didn’t know they got a new one every six months and free gas! I went to a Ford interview in Detroit and learned that the execs got huge discounts on cars too, so everyone in the family drove a Jaguar and Land Rovers for like $5k a piece. (I made those numbers up)

  9. Greg says:

    What I am confused about is the retention bonuses paid to those who are no longer with AIG.

    • Nee says:

      By my understanding, they were asked to stay until a certain date to be able to get the retention bonus. So, if they were asked to stay until January 1st and then quit on January 2nd, then those employees have fulfilled their part of the contract.

  10. JRMoreau says:

    I’ve repeatedly had my bonuses canceled on a company wide basis because the business was not performing well. AIG basically borrowed money from the US Gov’t to pay executive bonuses after the company under-performed horribly.

    Contract or not, the concept of a “bonus” to me means that you did something well and caused your company to grow and perform. That didn’t happen at AIG.

    Just my 2 cents

    • Jim says:

      So if you did something well but everyone else didn’t, you think you shouldn’t get a bonus? Even if it was in your contract and you agreed to a $1 salary?

      Now I know why sometimes they call some payments “deferred compensation” or other vocabulary gymnastics.

    • Jim says:

      When your bonus was cancelled did you actually have a contract in writing? If so then the contract was broken and you are due that money. You could sue and win. The people at AIG had an actual contract for these bonuses.

      “the concept of a “bonus” to me means that you did something well and caused your company to grow and perform”

      Then thats just semantics. If the word bonus was crossed off and replaced with the word “pay” then would you be as angry?

      • Dave says:

        I think that what the AIG people got wasn’t acutally a “bonus”. I am contractually obligated to receive a bonus at my job, however, it is on a sliding scale, based on my performance and that of the company. I could get a zero percent bonus (which thankfully has never happened), but I think that if you have a signed contract for compensation, its not a bonsu but salary (or defered compensation, if you will).

        Becasue of the contract, I think that the AIG execs are entitled to every penny that was in there. Just because the paper said “bonus” on it doesn’t mean that’s what it was. I think the Gov’t going after them with 90% taxes, etc, are a complete farce and abuse of polical power. If any campaign slogans pop up with a NJ congressman or senator saying that they voted for this tax, I’ll vote for whoever is running against them.

  11. What did everything think was going to happen? I don’t get how nearly anyone is surprised by these turn of events. This is the type of problem that should be presented and resolved before any bailout is even considered.
    My concern is that this is a slippery slope. What’s next… do we tax all AIG employees down to the poverty line. I mean in essence, they should still be able to survive, and after all we as a country are in deep debt. No here’s what you do… You pay people based on their performance, you pay people what they are worth. Many of these executives deserve every penny of the money they got paid and I’m glad Jim is helping present the other side.

    This is a big political game. The republicans want to spin it to show that the democrats policies have failed, and the democrats are spinning it to take yet another “stand” against “greed” on Wall Street. It’s one big freakin’ distraction from the larger issue of the economy as a whole.

    How much loyalty and trust do you think exist right now inside the lunch room at AIG. If AIG is going to turn around who do you think is going to do it? A government oversight board? The person who answers the phone? No, it’s going to be performance-paid individuals who want to bust the butts, all the while trusting that the company will pay them at least what they contractually agreed to!

    I’m no constitutional lawyer, but this whole 90% tax thing is the most outrageous thing I’ve ever seen in my life. It’s like the democrats hit the “Oh Crap” button and will do anything to make it seem they are standing up for the little guy. The same little guy who couldn’t “afford” to have AIG fail in the first place.

    I’m a little guy with a little kid and frankly I don’t remember my 1 year old daughter co-signing for these bailouts. They should probably ask her what she thinks of this. She’d puke down the front of their shirts!

  12. Andrew says:

    What the media doesn’t mention is that the bonuses come to slightly less than 0.1% (1 dollar in 1000) of the bailout money. Who cares? We should be angry at the bailout, not the bonuses.

  13. I think you have to let the companies run themselves. The government made a choice to give the companies the money – and that’s one thing – but I don’t believe the government should be attempting to decide how that money is spent. Competition should set prices in the market place, and the government is not in a position to run a commpany. They are their to make laws and govern. I tend to be against the bailouts in general (especially the automotive bailout), but people who understand economics better than I do made the call. I would let the free market work and allow those with money to buy the assets of companies that failed due to their irresponsibility. The short term pain would have been extremely high, but I think by the time you emerge from that, the companies and the country would have been stronger. Of course, as a government you have an incentive to avoid short term pain if you want to get re-elected. Just my two cents.

  14. Jim says:

    I think its justified to be upset about the bonuses. I think the amount of outrage over it is misguided.

    But a contract is a contract. So they should be paid the money. If I do a crappy job at work I still get to keep my paycheck for the week.

    I think taxing all of them is not necessarily a good solution. It unfairly punishes the people who worked hard and did no wrong. The individuals who performed poorly should singled out and fired and/or prosecuted in criminal or civil court. Get the money back that way by finding the guilty people and making them pay.

    The individuals who did no wrong at AIG should still be fairly compensated. But then we come to that word ‘fair’. I think part of the outrage is about the idea that some of these guys are still pulling in multi million dollar salaries which seems completely unwarranted given the circumstances of their companies failure.

    Jim

  15. I think this whole “outrage” at AIG for these bonuses is a huge head fake by the politicians to get people’s attention away from where it really should be – all the wasteful spending and earmarks contained in the bailout bills, as well is in the spending bills that were recently passed. This 165 million is a TINY portion of that whole bill, and the bonuses were contractually obligated. AIG could probably have not paid them, but then they most likely would have lost in court and would have had to pay them anyway, plus damages!

    Also the politicians knew about this stuff beforehand. Democrat Senator Dodd even put a provision in the bill guaranteeing that employees would get these bonuses. And now – they want to feign outrage when they knew full well what was going on in the first place (or should have)? C’mon!

    Add on top of that the fact that the people getting bonuses are NOT the same people who caused all the problems at AIG. These are people coming in to clean up the mess, or people running profitable divisions of the company.

    Stop the phony outrage politicians – and clean up your own mess!

  16. If this $160mil was called salary instead of being labeled a ‘bonus’, no one would’ve cared. This isn’t a bonus in the sense that it’s a reward for good performance around Christmas-time. It’s a contractually-bargained lump-sum payment. They are fixed amounts, not based on “percentage of sales” or anything like that.

    Meanwhile, I hear that $1 BILLION is being given to ACORN, and a federal budget is being proposed with 4 TIMES the deficits that even Bush ever proposed. Take the biggest spending president in history (Dubya), and quadruple his deficits on a year-to-year basis. This is what’s being proposed while we worry about the semantics of ‘bonus’ vs. ‘lump-sum’.

    Smoke & mirrors, Jim. Smoke & mirrors.

  17. JoshFinnie says:

    I don’t feel bad about it. It is only a 1/10th of a percent of the money the government gave them.

    Here is one of my favorite explanations of the current AIG bonus argument: http://xkcd.com/558/

  18. JC says:

    I think outrage without action is pointless.

  19. Dan says:

    It’s a distraction.

  20. SJ says:

    I wrote my comments a while ago here:
    http://www.6bubbles.com/blog/2009/03/sj-take-90-tax-on-bonuses/
    http://www.6bubbles.com/blog/2009/03/sj-rants-more-on-aig-bonuses-and-stuff/

    But now I’m more or less pro-bonuses. They’re working themselves out of a job… sooooo yea.

    It’s a biiiig decoy “look behind you!” As the world falls apart… (hopefully!)

    Btw, isn’t that the point of the Big 3 bailout? Under “normal” circumstances they would survive. But b/c of no fault of their own they are in deep sh!t.
    Same for the execs.

    Be consistent please =)

  21. Terry says:

    I have no empathy for them. I also think this fear or a brain drain at corporations is a political spin on the reality of the situation.

    I also think it’s hysterical that the guys on wall street created this mess, but the news looks to wall st to see how the ‘markets’ react to every single proposal out there. Seriously, if I clean my windows, I better check to see how the ‘markets’ reacted to it!

    They should have been fired. Period. And more then that, AIG should simply not exist – the problem with the bailout to them is that to placate the neo-cons screaming their bloody heads off, we’ve let them still exit and therefore their bad promises exist as well.

    If we have to uphold their bad decisions to guarantee bonuses to a bunch of losers, what other bad decisions of theirs do we need to uphold.

    • tom says:

      How do you say $100 million in profits is a bad decision in this market? This guy accepted a $1 salary, and was relying on this “bonus” as his yearly salary.

      How would you like it if you worked your ass off for a year for $1? You wouldn’t. Especially if you made all the right decisions, had nothing to do with this mess, and turned a profit for the US taxpayers.

      Brain drain is 100% correct. Who wants to go work for a company that won’t be compensating their employees for turning massive profits? How will this bailout money be paid back if they cannot find talented people to return this company to profitability or to make the divisions look like something another corporation would buy? So yes, brain drain is a legitimate fear.

  22. daniel says:

    I’m upset but I believe a contract is a contract. Yet every contract I’ve ever seen in my life is filled with clauses on ways to nullify that contract. My rental contract contains millions of ways for my landlord to evict me. I can’t believe that there’s $160M+ worth of contracts over at AIG that says they will unconditionally hand over all this money, especially at a corporation whose entire business is based on their underwriting expertise. I don’t have problems with just-deserved bonuses, but there should be clauses that say if you don’t meet certain goals, you won’t get a bonus. This would at least weed out all the bad bonuses.

    Lets say I’m wrong and the contracts say the bonuses are unconditional. By that logic, shouldn’t we be forcing all the underwater homeowners to abide by their contracts as well? Yet our govt is coercing banks into giving these homeowners modified mortgages by subsidizing the banks.

    Also, had AIG went into bankruptcy, which they obviously would have had we the taxpayers not helped them out, the contract money would have been sorted out in court and put in the “IOU” queue along with everyone else.

    Does anyone know how much of the $160M went to profitable units of AIG and how much went to AIG-FP?

    • Yes, contracts contain terms that can nullify the contract, and most likely, many performance bonuses at AIG were NOT paid out because the terms were not met. Taking a quick look at AIG’s previous balance sheets… in 2007 AIG’s operating expenses were $101.121 Billion. For a company of that size It seems completely within reason that this $160 million in bonuses were the contracts whose terms were met (really, why would AIG pay bonuses they weren’t obligated to by contract?). So, unless someone knows otherwise, I give AIG the benefit of the doubt here and assume that the $160M could very well likely be a small subset of the bonuses that would have otherwise been paid.

  23. TStrump says:

    Had the company gone completely broke, I doubt if executives would have still received bonus money.
    I have no problem paying people for performance, though …

  24. Regardless of whether or not you believe the executives should have received their bonuses, they received them completely legally by contract. Contracts are contracts, and their sanctity should be respected. It should be very scary, not to mention unconstitutional, when the politicians single out an individual/group of individuals to punish with legislation, as the house of representatives has done.

    It really is just an intentional distraction, to distract you from the BILLIONS of bailout dollars that will really be wasted by inefficient government programs and allocations to unproductive sectors.

  25. dan says:

    Funny, Washington under JC and BC wanted everyone to own a home, W didn’t stop it. Washington pressured the banks to lend to anyone, AIG insure’s the loans, but has to cover it’s A, so sells, and buy’s CS’s and goes broke. Then to keep people who know how to make money and help get them out of the mess that Washington created they pay a tiny bonus and Washington to keep from getting found out that it was them that caused the mess scream and stomp around in a holier than thou attitude. All the while rapeing the American taxpayer with the promise of free goodies. And a better tomorrow, shaking your hand and grinning as they slid your wallet out of your back pocket. But we have our eyes closed, while we click our heels and reapeat over and over, “Change, Yes we can.”


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