By: Tom Watson
OK, here is the deal. I am like a lot of people who don’t take home millions, although I once thought I was gonna be the next Jeff Skoll thanks to stock options that I (supposedly) had as City of London venture capitalist back when Whoopi Goldberg was pushing Flooz.com. And as a wage slave, I immediately applauded American politicians for threatening to tax the heck out of bonuses handed out to the financial wizards at AIG.
But now, I actually respect the back peddling at the White House, where economic advisers acknowledged on March 22 that using tax law to get back US$165 million in AIG bonuses may be “a dangerous way to go.”
The guys and gals in question clearly didn’t do what average folks are expected to do for extra pay. That’s why, when I first heard the news, I wondered why U.S. tax authorities were targeting just 90%, which still puts US$400,000 into the hands of AIG executives slated to get a US$4-million reward. Pretty good for a job not so well done.
But then Barney Frank, the Massachusetts Democrat in charge of the powerful banking committee, said the tax might not be enough. He suggested suing AIG employees, noting the American government has an 80% stake that should be used “to assert our rights.” That’s when I asked myself how I’d feel working for a company with unhappy shareholders who decided I should return a signing bonus built into my contract. I also wondered how I would react if the general public started hating my employer (a cable company) and successfully lobbied government to tax me more out of spite.
Some AIG executives have now decided to “voluntarily” hand back the cash. But they are just trying to save themselves from being financially lynched. The bailout money sent to AIG is moot. These so-called bonuses were legally negotiated payouts at a private company and the contracts were inked before the crash. In today’s environment, the handouts might seem ridiculous. But they were not tied to performance.
I’d keep the money. George W. Bush kept his pay. So did Sir Allan. Why not AIG executives?
5 Responses to “ AIG bonus gang should keep the cash ”
One journalist I know sent me this comment via email (after missing my point):”Yes, and Haliburton should not be questioned about the billions it has reaped in no-bid government contracts because, after all, the Vice President of the United States said it was ok…”
By Tom Watson on Mar 25, 2009
Modified and corrected. Please omit previous submission.
There appears to be two major considerations at play: A) What the employees deserve, and b) what the employees are owed, specifically by their new owner, the American federal government.
In an ideal world, how much would the owners of the firm reward these employees based on their individual performance and the success of the company, in the competitive landscape for their labour? There appears to be little disagreement on this topic: Approximately zero. A bonus is just that: financial recognition for efforts and outcomes that are uniquely positive and beyond the normal scope of their salary. Even if we accepted that these people were all very special, the accepted convention in the financial industry is: A rising tide lifts your boat too, and you have to go down with the ship, especially if you helped create the leak. What do they deserve? About zero.
The second component of the equation is ostensibly based on the sanctity of a contract. The government should always be mindful of seemingly arbitrary measures; however, a fuller application of the principles of contract law is actually called for, in particular, the use of “force majeure”. This is an implied, if not explicit, clause which “essentially frees the parties from liability or obligation when an extraordinary event or circumstance beyond their control, such as a war, strike, riot, “act of God” etc. prevents one or both parties from fulfilling their obligations of the contract”. Could anyone reasonably argue that AIG was not subject to once-in-a-lifetime external forces, including an existential change in its ownership? Rule of law, property rights, and the meeting of moral obligations are sustained under force majeure with no bonus payments.
Natural justice suggests that we shouldn’t pay them, and our legal structure allows that we don’t have to. Perfect.
By jeff stephan on Mar 25, 2009
The pay issue is a diversion that many demagogic politicians are using to mask their own incompetence. Why wasn’t this dealt with – and presumably nullified – prior to handing the taxpayer’s money to AIG? Blaming the recipients afterwards just plays to the politics of division.
There is also the larger issue of passing legislation to disallow past agreements that were legal when signed. Not very democratic and it sets a very dangerous precedent.
By Cyrus Barucha on Mar 25, 2009
After the government gave AIG bailout money, they should have used ownership rights and cancelled all performance bonuses and laid off the executives who have done nothing but run the company to ground. It is insane how AIG justified their action and rewarded failure. At the end of the day, it’s the US taxpayer that is getting screwed left and right. How come nobody is thinking about bailing out the middle class that is losing jobs and homes?
By David Dzidzikashvili on Apr 5, 2009
Retention incentive – seems to me that these gimme gimme folks at AIG have missed the meaning altogether.
Lets get down to the actual meaning of those words. Retention incentive means keeping and doing your job. Do a bad job and guess what, you don’t get retained. As a matter of fact, if you do a bad job, you get your ass fired.
The self important AIG folks seem to feel that they should be paid big bucks just for getting up to shut off the alarm clock, and heaven be praised, if they lower themselves to show up at work, they deserve more. In addition, I get the impression that they feel that if they actually sit down at their desks, that they should get even more millions from the government and clients.
Sorry jerks, but a “bonus” is something you get when you do a really really good job. You don’t get it for being able to breathe on you own.
By del rokosh on Apr 16, 2009