No, they’re not eating cake or fiddling while Rome burns – but that’s the impression you’d get from watching TV or listening to the radio talking heads. I’m referring to the AIG execs currently in the pillory for accepting bonuses after losing $43 billion last year.
This is a rather significant digression from MCM’s headline topic, but one that is so topical that I spent most of yesterday doing television interviews on the subject. Yesterday morning I tried to make the point to Fox Business News viewers that 116,000 AIG employees not working for AIG Financial Products should not be tarred with the same brush used to paint AIGFP’s 450-odd workers. AIGFP lost $43 billion last year, or about a hundred million dollars per employee – likely a record for any erstwhile-profit making enterprise.
On Nightline last night, about fifteen minutes of interview were left on the editing room floor in favor of two sound bites – one of which had me noting that the AIGFP execs should not take their bonuses, as they did not, by any civilized measure, earn them.
Easy for me to say. In fact, this statement came after several minutes of back and forth wherein I described the high-pressure environment, the relentless competition, the brutally stressful world that is AIG senior management – not as a justification for getting bonuses for blowing $40 billion, but rather to show that individuals who survived in that environment very likely felt they had earned their financial rewards. Here’s an earlier post describing the cultural roots of the problems.
At the end of all the hysteria and hand-wringing, the bonuses are due and payable. Not paying them would result in litigation and further delay in cleaning up the mess. To date AIGFP has reportedly closed out fully a quarter of its CDS positions; in all liklihood this would not have happened if the staff was fired/shot/drawn and quartered. As AIG’s owners the faster they fix this the better for us.
Yes, the Obama Administration should do everything it can to limit those bonuses, but not at the expense of successfully winding down AIGFP’s positions. Lets be adults here, and to quote the President, not ‘govern out of anger’ but rather out of intelligence. Sure, it makes great politics, but that doesn’t get we taxpayers a dime of our investment back.
Cool, calculating, careful thought will.
Mar
17
In all the hype and hullabaloo, I have not heard the answer to two questions I am curious about:
Would the bonus payments have been forthcoming absent the government funds? and if so, would they have been made from the final assets of the company just ahead of a bankruptcy declaration (a tactic I would deem akin to looting)?
What amount of the bonuses in furor are due to people in return for staying on instead of bailing to a more stable employer (if any available)?
Joe, I respectfully disagree. The contracts in question were entered into under a wholly different set of assumptions than those that we all have to deal with today. There has been a seismic shift and most such contracts have some form of force majure clause which provides for dramatic changes in the nature of the business and its ongoing conduct. AIGFP is in winddown now and should be managed accordingly. The bonus bearing employement contracts are relicts of a time when it was a going concern. Not to recognize that change really is a waste of scarce resources, resources which were picked from our pockets. When we as a nation are at the outer limits of our ability to borrow, every hundred million counts.
Joe, I’m wondering if you want to defend this in light of today’s latest bomb: “New York Attorney General Andrew Cuomo said insurance giant American International Group paid bonuses of $1 million or more to each of 73 employees, including 11 who no longer work for the company.”
Does anybody know the definition of a bonus? Something in addition to your normal pay is what it is. Our company cut bonuses first thing. We have been told from day one that a bonus is an extra, not a part of our salary. Our only alternative was to find another job if you didn’t like it. If the management at AIG did not make it clear to their employees what a bonus really is, then shame on them; it is another sign of poor management! I would hope in the future that lessons have been learned.
Joe, as we all know we live in a country sadly split in two sides, the right and the left. We can’t even listen to a straight forward news channel, same thing, they lean either to the right of to the left. The thing is, all of them seem to agree that AIG should not have gotten any bonuses. Even the Pro-Business WSJ has come out to say (via staff editorials) that once a company has it’s hand out for Bail out money, that they have no right to any kind of bonus. It’s very rare in this country to have both the Left and Right agree upon something, but everyone I talk to, regardless of affiliation, seems to be screaming bloody murder.
Joe… I usually agree with you on most things, but on this issue, I simply cannot. What AIG has done is nothing less than domestic terrorism. Our gov’t basically let this company attack and rape us of our hard-earned tax dollars. Tax money that could have been used towards a national healthcare program or anything else but wasted.
Why did our gov’t let this happen to us? Why didn’t they protest. Well, because high paid consultants, probably on AIG’s payroll, told them our country would basically fall apart without AIG.
What a joke that was? As I stated before our gov’t made even one payment to this farce of a company, I would have let them fail and as it turned out, I was right.
As a small owner who runs a debt free, profitable company, I am appalled at thought of any company, especially one as financially mismanaged as AIG, being given a gov’t bailout with our tax dollars. We don’t have the luxury of sitting back and letting ourselves fail and hoping for a bailout. Why should AIG?
Everyone cries when the gov’t tries to interferes with the private sector, but all we seem to be doing lately is bailing out those companies that we should just let fail. There are other companies waiting in the wings to replace them, ones much more deserving than the likes of AIG.
Joe,
I am very sad to see your take on this subject. High stress? The “brutally stressful world that is AIG senior management”? What about the stress that Americans are dealing with as their retirement funds have shrunk or vanished?
More importantly, if AIG would have gone bankrupt without the Federal help, would the executives have received their bonuses?
At one point in my career, I took a lower salary, but had stock options and bonuses that were payable if we turned the company around. We did and I was rewarded for the success. The AIG executives should not receive rewards for a failing entity, whether or not they were directly responsible.