Thursday, March 19, 2009
Political Mayhem Thursday: The A.I.G. Bonuses
So, the American International Group paid bonuses last week to 418 employees. This company has been so badly run that it has required a $200 billion government bailout. The bonuses were for the express purpose of retaining many of those employees who had already destroyed the company through derivatives trading. Despite these being called "retention" bonuses, over $33,000,000 was paid to 52 people who had already quit or been fired.
Sigh.
Should we have just let this company die? That would have terminated the contracts which provided for this largesse, but possibly caused a cascade of other problems.
I suspect that what is rotten here relates to an underlying problem-- the system of corporate governance we allow, which grossly over-compensates executives without much regard to their performance.
UPDATE: Now it appears that Congress will tax those bonuses at a rate of 90%!
Sigh.
Should we have just let this company die? That would have terminated the contracts which provided for this largesse, but possibly caused a cascade of other problems.
I suspect that what is rotten here relates to an underlying problem-- the system of corporate governance we allow, which grossly over-compensates executives without much regard to their performance.
UPDATE: Now it appears that Congress will tax those bonuses at a rate of 90%!
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While letting the company die would have prevented this particular abuse, it also would've meant putting a bunch of workers that had little-to-nothing to do with the company's failure out of work.
The bonuses are terrible, and I think that any bailout money ought to have strictures attached to it to prevent things like this.
The bonuses are terrible, and I think that any bailout money ought to have strictures attached to it to prevent things like this.
I have heard that it was one division that did all the bad stuff and got all the bonuses. So I guess NO But I don't know how they can live with themselves.
I don't support the bonuses, think they were a bad idea, and certainly agree with all who say that nobody earned them. Yes, it makes me angry that my tax dollars are being used in such a way, especially since I (and the rest of us) own about 80% of the company.
All that said, this is typical American political theatrics. The amount in question is, in the grand scheme of things, rather small. And rather than focusing on the larger issue, like how has the rest of the money been used, what metrics are being used to measure success or failure, is the company's balance sheet showing improvement, etc. we (mainly the press) focus on the trees, despite the forest. Many years ago I worked for a US Governmetn agency chanrged with investigating foreign companies in trade disputes. We always made fun of our colleagues who would seize upon the smallest detail and miss the larger picture - we called it "going for the capillary." To me, all this outrage is akin to a heart surgeon cracking the chest of a patient, noticing a small papercut on the index finger, and decising the bypass operation can wait while he tends to the finger.
Ok, enough analogies. Back to work.
All that said, this is typical American political theatrics. The amount in question is, in the grand scheme of things, rather small. And rather than focusing on the larger issue, like how has the rest of the money been used, what metrics are being used to measure success or failure, is the company's balance sheet showing improvement, etc. we (mainly the press) focus on the trees, despite the forest. Many years ago I worked for a US Governmetn agency chanrged with investigating foreign companies in trade disputes. We always made fun of our colleagues who would seize upon the smallest detail and miss the larger picture - we called it "going for the capillary." To me, all this outrage is akin to a heart surgeon cracking the chest of a patient, noticing a small papercut on the index finger, and decising the bypass operation can wait while he tends to the finger.
Ok, enough analogies. Back to work.
# posted by 
: 8:47 AM
: 8:47 AM
I don't blame the system completely. I also--and emphatically--blame the people who accepted the bonuses.
Somehow, we've made it acceptable to take something for nothing--and to take even more for doing bad unto others.
That's shameful not only for the people who took the money, but also for the larger culture that abetted it by focusing on the contractual system instead of the humans--who supposedly have a conscience--who chose to accept the bonuses.
I heard that some employees didn't accept the bonuses. I hope the press gives them the credit they're due.
Somehow, we've made it acceptable to take something for nothing--and to take even more for doing bad unto others.
That's shameful not only for the people who took the money, but also for the larger culture that abetted it by focusing on the contractual system instead of the humans--who supposedly have a conscience--who chose to accept the bonuses.
I heard that some employees didn't accept the bonuses. I hope the press gives them the credit they're due.
Professor,
Sorry, this isn't mayhem-related, but the slate has a haunting online photo gallery of Detroit's Grand Ruins:
http://www.slate.com/id/2213696/
Sorry, this isn't mayhem-related, but the slate has a haunting online photo gallery of Detroit's Grand Ruins:
http://www.slate.com/id/2213696/
# posted by : 9:29 AM
: 9:29 AM
We should not be surprised when a company like AIG with a track record of making terrible decisions continues to make terrible decisions. What am I talking about? The business moves that led to AIG's need for a bailout in the first place? Of course not! The red flag should have been AIG's decision to become the shirt sponsor of evil personified on Earth, Manchester United. Any company who gets into bed with Man U clearly cannot be trusted with taxpayer money.
Aside to RRL: I'm sure you will pop up with your pro-Man U garbage. While Man U might be on their way to the historic "quintupple," you must remember that historic seasons cut both ways. Like the game on Saturday; that was historic, wasn't it?
Aside to RRL: I'm sure you will pop up with your pro-Man U garbage. While Man U might be on their way to the historic "quintupple," you must remember that historic seasons cut both ways. Like the game on Saturday; that was historic, wasn't it?
I don't have much patience for this whole AIG thing. The same people that are whining about AIG bonuses are the people that supported rushing through the stimulus bill without significant debate. So, this is what you get. Now I own (as a taxpayer) a small stake in a terrible company that is not using my money wisely. Oh well, I didn't want to own a stake in the company in the first place.
As far as the greatness of Manchester United is concerned, poor little Scousers had a big day on Saturday. I hope that one win can keep you warm at night when you realize that since the last time you won the league 19 years ago Man U have won it 10 times, and are about to win it for an 11th. Poor little Scousers. So bitter. So jealous. So sad.
As far as the greatness of Manchester United is concerned, poor little Scousers had a big day on Saturday. I hope that one win can keep you warm at night when you realize that since the last time you won the league 19 years ago Man U have won it 10 times, and are about to win it for an 11th. Poor little Scousers. So bitter. So jealous. So sad.
# posted by : 11:10 AM
: 11:10 AM
Man, no love today on the Razor, not even for football. Sheesh.
Anyway, I say we take them who's responsible and put them in the Thunderdome. Last one out? Bonus that dude, he earned it.
Anyway, I say we take them who's responsible and put them in the Thunderdome. Last one out? Bonus that dude, he earned it.
I say recall the money paid out in the bailout and let them sue to get it back. That way, they'll have to go before a federal judge and explain exactly why they deserve bonuses for their conduct. It might not work, but the transcript would be priceless.
Stu and anon.--
We went to George's for dinner before the movie, and Crickets after the movie. No bailout money (or Baylor money) was used.
For what it's worth, Will Patton is not only a great actor, but a very down-to-earth and interesting guy.
We went to George's for dinner before the movie, and Crickets after the movie. No bailout money (or Baylor money) was used.
For what it's worth, Will Patton is not only a great actor, but a very down-to-earth and interesting guy.
I thought the problem with the bonuses was that AIG was contractually obligated to pay them. I'm no bankruptcy expert, but if we allowed AIG to fail and they filed for bankruptcy, wouldn't the trustee be able to assume or reject those contracts? Seems like the government's hands were tied on this because the bonuses were legal, despite being ill advised.
From a political standpoint, this is the first real heat Obama is getting that can't be characterized as an inheritance from Bush.
From a political standpoint, this is the first real heat Obama is getting that can't be characterized as an inheritance from Bush.
Good news! As Osler has pointed out, the Democrats have now decided to tax the bonuses at a rate of 90%! Woohoo!
So, Chris Dodd, at the request Obama's treasury department, inserts an amendment ensuring that AIG can give these loans. And now the Democrats, in a grand gesture of populism, are going to tax those same bonuses at a 90% tax rate. Can't wait to hear the first moron that commends the Democrats for this action.
For some reason, all of this makes me feel like 1984 isn't really a science fiction novel so much.
So, Chris Dodd, at the request Obama's treasury department, inserts an amendment ensuring that AIG can give these loans. And now the Democrats, in a grand gesture of populism, are going to tax those same bonuses at a 90% tax rate. Can't wait to hear the first moron that commends the Democrats for this action.
For some reason, all of this makes me feel like 1984 isn't really a science fiction novel so much.
# posted by : 6:37 PM
: 6:37 PM
First, I am so tired of turning on the radio and listening to the AIG debacle ad nauseum.... I think the whole House tax bill is garbage and probably won't stand up in court - but hey you guys are the lawyers and lawyer wanna-bes'
Are most of the bonuses deserved - probably not. If you left the firm before year end (contract or no) - you are out of luck. My understanding is there are a lot of bonuses to 'former' AIG employees.
My own experience with Wall Street bonuses (I wasn't at this level) was you worked your butt off and HOPED that some additional year end comp would come your way. And yes, in good years it could be substantial. There were no guarantees in the Middle Office or Operations. We were at the bottom of the food chain even though we had to service the trades. In lean years the bonus money was small and there were never any GUARANTEES. Managers tended to reward those who busted their asses during the prior comp year. Believe it or not, base salaries are not high on the trading desk so that the names stay out of the annual reports. Your comp comes at year end.
On the trading desk, if your year end comp was low, that was your queue to start looking elsewhere for employment.
In recent years a lot of the year end comp was in stock options as opposed to $$$$ and you had to hold the options 'x' number of years before cashing them out. Obviously a lot of people were/are waiting to cash out a lot of bonuses and can't since bank stocks are in the tank. I don't know if there is a time window to cash out these options. This is people involved with the current mess and a majority that have no involvement at all.
Presumably those who stayed on at AIG are trying to help cleanup the mess or keep AIG afloat and probably deserve something. All of these high end folks get caught in the Alt Min Tax non-sense and if you haven't been there, be thankful.
Do any of them deserve the wild amounts that have been reported - NO.
At Salomon Brothers I had a dual employment contract with Salomon and a 2nd entity called Salomon SwapCo Inc. I along with a designated number of others would be paid 'additional' comp in the event that SwapCo had to be unwound. This entity needed to ensure there were people to help with the unwind and we were to be compensated for our efforts.
Time to go read Tom Wolf's 'Bonfire of the Vanities' or Michael Lewis' 'Liar's Poker'.
Are most of the bonuses deserved - probably not. If you left the firm before year end (contract or no) - you are out of luck. My understanding is there are a lot of bonuses to 'former' AIG employees.
My own experience with Wall Street bonuses (I wasn't at this level) was you worked your butt off and HOPED that some additional year end comp would come your way. And yes, in good years it could be substantial. There were no guarantees in the Middle Office or Operations. We were at the bottom of the food chain even though we had to service the trades. In lean years the bonus money was small and there were never any GUARANTEES. Managers tended to reward those who busted their asses during the prior comp year. Believe it or not, base salaries are not high on the trading desk so that the names stay out of the annual reports. Your comp comes at year end.
On the trading desk, if your year end comp was low, that was your queue to start looking elsewhere for employment.
In recent years a lot of the year end comp was in stock options as opposed to $$$$ and you had to hold the options 'x' number of years before cashing them out. Obviously a lot of people were/are waiting to cash out a lot of bonuses and can't since bank stocks are in the tank. I don't know if there is a time window to cash out these options. This is people involved with the current mess and a majority that have no involvement at all.
Presumably those who stayed on at AIG are trying to help cleanup the mess or keep AIG afloat and probably deserve something. All of these high end folks get caught in the Alt Min Tax non-sense and if you haven't been there, be thankful.
Do any of them deserve the wild amounts that have been reported - NO.
At Salomon Brothers I had a dual employment contract with Salomon and a 2nd entity called Salomon SwapCo Inc. I along with a designated number of others would be paid 'additional' comp in the event that SwapCo had to be unwound. This entity needed to ensure there were people to help with the unwind and we were to be compensated for our efforts.
Time to go read Tom Wolf's 'Bonfire of the Vanities' or Michael Lewis' 'Liar's Poker'.
There was a contract and AIG claims it had to honor it...
But I wonder if any of these people would have had the chutzpah to sue AIG if management had told them, "sorry, despite the contract we're not paying." And if any jury would have sided with them.
But I wonder if any of these people would have had the chutzpah to sue AIG if management had told them, "sorry, despite the contract we're not paying." And if any jury would have sided with them.
# posted by : 9:41 PM
: 9:41 PM
IPLawgay
My guess is they would not sue. They need all their money to keep the wives happy and kids in private school out in Stamford.
My guess is they would not sue. They need all their money to keep the wives happy and kids in private school out in Stamford.
Well, I work for AIG and I am personally glad we didn't let them, "die." :) No, I wasn't one to receive these bonuses. They were contracted for long before the current issues. Just for everyone to note, there are some very responsible, hard-working people at AIG who also only want to do what is right and to help AIG move on from the previous business issues. Luckily for all of us, most all the people making poor decision are long gone. I am one of the current employees trying to help it move up and on. Wish me luck.
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