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At first blush, American International Group has done it again: issuing $165 million in bonuses to executives in its financial products business—the unit that single-handedly made it rack up record losses. Understandably, everyone from President Barack Obama to New York Attorney General Andrew Cuomo has expressed outrage over paying anything to AIG’s derivatives traders. Obama has even told Treasury Secretary Tim Geithner to take every legal route to block them. (Hard to imagine taking the U.S. President to court when you’re 80% owned by taxpayers.)
But these payouts aren’t necessarily on par with sending your top execs to get spa treatments with their spouses while the home office is burning. There needs to be more clarity on who is receiving these bonuses—and why.
My own view is that practically any form of performance bonus at AIG is unjustified this year. Maybe some division had a relatively strong year but the company as a whole has essentially imploded. Arguing that you did well, all things considered, is simply a sign of being tone deaf. John Thain shouldn’t have paid $1.2 million to renovate his bathroom and environs at Merrill Lynch—and anyone working at AIG shouldn’t expect extra money for services rendered to their hobbled firm.
Tossing around even an extra penny at the financial products unit, where many became rich in recent years from putting $440 billion in credit default swaps on AIG’s books, seems particularly egregious.
What if AIG is contractually obligated to pay these folks? That was then; this is now. The sheer embarrassment of being held up as a recipient of extra money is likely enough to keep any exec from suing. Witness Merrill Lynch’s epic struggle to keep confidential the names of every manager who dipped into its $3.6 billion bonus pot in December.
But what if some of this money came in the form of retention bonuses? That, I think, is a more complex issue. There may well be people in the financial products unit who didn’t take audacious bets; people who need to be retained if the business hopes to survive. It’s doubtful, but certainly possible. Without knowing why these bonuses have been paid, the public can’t judge.
Until AIG provides the names of who is getting extra money and why, all bonuses should be kept on hold. The era of anonymous payouts is over.
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