Thursday, March 19

Gratuitous Cash

The talk of the town as of late has been AIG and the $165,000,000 in bonuses paid to executives … after receiving more than $170,000,000,000 in bailout money. The public, the government, the media, everyone, really (except for those receiving the bonuses, of course), is upset and appalled at this egregious amount of money in the face of our faltering economy.

Here are the numbers, according to New York attorney general Andrew Cuomo: 418 employees received bonuses. 298 of them received bonuses of $100,000 or more, with 73 of them receiving at least one million dollars. A lot of money, to be sure.

It seems almost a no-brainer that this is a ridiculous waste of taxpayer money and that something should be done about it, right? President Obama and Congress are working on just that – they’re taking this populist sentiment being spewed from all corners of the country and attempting to pass legislation that recoups the expense of the bonuses.

The US government, after all the bailout money, owns upwards of 80% of AIG, more than enough to attack this issue from the standpoint of owner of the company as opposed to a regulatory body. The controlling stake and finances that we (speaking as a taxpayer) have in the company certainly allow the government to take a more active role in employee compensation, and after all the talk about limiting executive pay in companies that accepted bailout money, the government almost has to take action.

Should it?

Everyone is looking for some place to put all of their anger at the failing economy, a scapegoat to take the blame for all that’s going wrong. It’s easy to point fingers – at banks, at lack of market regulation, at mortgage companies, at AIG, at people living beyond their means, at Bernie Madoff … people are flinging blame at anything it’ll stick to. Which, fine, I understand your anger. The economy is in shambles, people were seemingly bamboozled into accepting bad mortgages, the promise of the ever growing market is letting us down, and the world economy is on the brink of collapse.

As has been thoroughly noted in the press, many of the executives receiving the bonuses ran the financial services part of the company responsible for much of the unchecked risk that is largely responsible for the company’s current predicament. These executives, it seems, are being rewarded for driving the company into the ground and nearly taking the economy with it.

But the AIG employees that received bonuses were owed them contractually. AND nearly all of them offered to give the money back (AIG also reportedly asked all employees receiving $100,000 or more to give at least half of the money back). Is it too little, too late? Or should they even give the money back?

I understand the public outcry, I mean, I certainly would like a hundred thousand dollar bonus. Hell, I’d like a thousand dollar bonus. But it’s not in my contract to receive a ridiculously huge bonus. I can’t wrap my head around the unintended consequences of the government stepping in, even as primary shareholder, and reneging on a contract. That would set a precedent for avoiding unfortunate contractual obligations.

Many companies are taking preventative measures and reducing bonuses or freezing salaries, but these companies are, in general, communicating these decisions with employees, NOT giving them a bonus or a raise and asking for it back (except, of course, Microsoft and that whole asking for severance pay to be returned fiasco). It just seems that allowing companies to break contracts due to the whimsy of public opinion.

Does this mean that financial companies should pay outrageous bonuses to their employees? No. Does it mean that AIG should just give out bonuses all willy-nilly? Absolutely not.

It is unbelievably irresponsible for AIG to pay out such massive bonuses after taking so much taxpayer money and needing to be bailed out from bankruptcy several times. It is commendable that the employees are offering to give their bonuses back, but that makes me think that they’re overpaid anyway if they can afford to return over a hundred thousand dollars. Perhaps the “leadership” at AIG could have had the foresight to understand that giving out a hundred million dollars in bonuses would create a public backlash, but, then, if they had any kind of foresight, perhaps they could have avoided this mess all together. 

2 comments:

Art said...

i totally agree with your cool, calm and collected mindset to responding to the populist fervor spreading across our nation. as much as its easy to blame AIG, we have to remember that the Fed, the 110th Congress, and the last administration raised all sorts of hell to make sure that for any of the big 3 automakers to receive any bailout money, that union contracts had to be renegotiated. and they were only asking for like $18 billion.

in this case, we have to remember that the Fed used its unilateral power to give failing banks and investment banks tons of cash to save them, no questions asked. it's quite easy to be mad at AIG, because it seems like an inappropriate time for any investment bank to be getting any bonuses, especially ones as big as theirs. but, in the end- the Fed had a chance to put some stipulations into the money they gave to AIG and the amount of money from the bonuses is miniscule compared to the overall chunk of money AIG has received.

Paul C. Wagner said...

Absolutely agree with you.