More Millions, More Mishaps: Washington Struggles with AIG’s Executive Compensation Bonuses
A remnant from the previous
administration’s carelessness is now an enormous problem for the current one.
When American International Group,
Inc, AIG, accepted taxpayers’ bailout funds last year, no member of the Bush
administration bothered to address how AIG planned to reward their employees in the coming year. Then,
according to an AP article, “Analysis:
White House, Dems Backpedaling on AIG,” no one in the Treasury Department
under the Obama administration double-checked the AIG bonus structure or
compensation plans when they gave AIG an additional $30 billion just a few
Now, after AIG followed through on its contractual obligation to give out $165 million in executive bonuses to
its high level employees, is it ethical to reverse AIG’s actions and get that
money back to the taxpayers?
Public Fed Up With Excessive Executive Compensation
Washington and the American public
are sending a loud and clear message to bailout fund recipient, AIG, about the
fairness of handing out executive retention bonuses, particularly to the people
who got them in trouble. The message is, “No way!” According to an AP article, “House
Passes Bill Taxing Fat Bonus Payouts to AIG,” the House passed legislation
within a week of learning about the AIG’s bonuses to ensure that they will be
taxed at 90 and up to 100 percent.
Did AIG just have bad timing? Many
months ago, no one may have noticed AIG’s choice until well after the deed was
done. But this time, after a long string of executive compensation bonus
scandals, the federal government and the taxpayers are extra sensitive to
wasteful spending where bailout funds are involved. According to the AP article, “AIG Head Shares US Anger of
Bonuses But Backs Them,” Treasury Secretary Timothy Geithner found out
about the AIG bonuses Tuesday, March 10 then made President Obama aware of them
on Thursday, March 12. Nonetheless, AIG gave out $165 million in bailout-funded
bonuses over the following weekend and, mostly, to the group that caused its
Questions still hover around this
messy situation, does getting involved in AIG’s agreement with its employees
send all sense of order and trust between the government and companies to the
Where All This Trouble Came From
The Yahoo! Finance piece, “What’s
Good, What’s Bad About the AIG Bailout,” points out that $165 million in
executive compensation bonuses that is causing this upheaval pales in
comparison to the $170 billion AIG has received in total bailout funds. Very
true. But, it’s the principle of their actions that smarts once you know what
led up to it.
Just after Lehman Brothers failed
and Merrill Lynch found a buyer, back in September of 2008, AIG ended up on the
verge of bankruptcy and was given $85 billion in emergency funds to prevent its
failure. This money changed hands fairly quickly and without a great deal of
oversight. Why did AIG get so much bailout money, and why was AIG’s security
considered a national emergency?
AIG Is Big Business
Apparently, even though the portion
of the company that was involved in mortgage-backed securities was small in
comparison with the insurance side of AIG, the smaller, failing portion of the
company would have brought down every other part with it. And, government
officials feared that AIG’s demise would have caused ramifications from which our
economy could not recover.
AIG is so big that even its current
CEO Edward Liddy, brought in to manage the use of bailout money, recently was
quoted by The Associated Press as saying that his new management team found
AIG’s overall structure, “too complex, too unwieldy and too opaque for its
component businesses to be well managed as one company.”
Basically, even the best of the
financial best are struggling to manage this beast of a company. So, is it any
wonder that they decided to keep it simple and stick with paying out the
employee bonuses they were contracted to pay?
AIG’s Best Choices
Let’s take one moment to compliment
some choices that AIG’s current management has made regarding the AIG bonus
structure, according to another AP
CEO Says Employees Starting to Return Bonuses.”
1. Their post-TARP
CEO Edward Liddy is not getting a compensation bonus and only earning $1 this
eventually asked employees receiving the AIG bonuses to voluntarily give back
at least half of anything received over $100,000, if they were willing to.
3. AIG is
trying to protect the sanctity of their contracts with their employees to
preserve some sense of trustworthiness as an employer.
The interesting thing about the second
point is that many employees, before the new tax was passed by Congress, responded
to Liddy’s request and agreed to give back their AIG bonuses – some in full.
Their motivation to do so may have been complicated.
Most people want to hold onto their
money, no matter what. But, since, according to that Yahoo! Finance piece, N.Y. Attorney General Andrew Cuomo is calling
for the names of all those AIG employees receiving bonuses, it would likely be
smart to be the good guy or gal on that list who handed the money back. It’s
questionable whether or not Cuomo has the right to demand this information, but
he will likely get it. Second, some members of the public are sending death
threats out that target all of the AIG bonus recipients in general. So, when
you’re already making the big bucks, is that extra $1 million worth losing your
Are We At Compensation War?
It seems that our country has
reached a tipping point. The gloves have come off. After years of excessive
executive compensation the government, cheered on by many taxpayers, is trying
harder than ever to put an end to it. In a statement made Wednesday, according
to the AP story, “Obama Seeks
Great Rein on Financial Institutions,” President Obama summed up his
opinion of excessive executive compensation by saying, “the buck stops with
In the hustle to change things,
rules are being bent, some nearly to the point of breaking, as we watch this
mess get sorted out. Some examples, according to articles already mentioned, as
well as the AP story, “AIG
bonus checks may be taxed at up to 100%, says Sen. Chuck Schumer,” are:
government’s initial demands that AIG bonuses simply not occur, even though the
company is contractually obligated to pay them.
legislation from Congress that taxes all AIG bonuses.
for the creation of another regulatory entity to manage the dissolution of
large financial institutions, like AIG. It would have powers similar to the
This is certainly not a time when
the government is sitting back and letting business do its thing. The fact is
that the U.S. government now owns 80 percent of AIG so the lines are fuzzy as to how much involvement is appropriate.