AIG Execs: Hand Back the $165 Million

Owing to the poor management that has created its need for multiple government bailouts totaling in excess of $170 billion, AIG should compel its executives to give back their bonuses. Pro or con?

Pro: No Reward for Failure

Imagine that your company is on life support. You’re borrowing hundreds of billions from the government to stay afloat after you’ve made a lot of bad bets and acquired enough toxic assets to endanger your very existence. Do you really think it’s wise to take the money that’s artificially keeping you afloat and use it to reward yourself in the middle of a crisis to which you contributed in no small measure?

Yes, the $165 million designated for AIG’s (AIG) bonuses is less than a thousandth of the total of bailout money it received. But the very idea that executives on whose watch the company ended up teetering on the edge of bankruptcy would try to reward themselves for failure demonstrates such a unique tone deafness and amazing greed, it’s downright reprehensible. Sure, the Wall Street culture is all about staggering bonuses and competitions for the most palatial offices—but to continue as is when the entire financial system is on government life support thanks to their mistakes? It simply boggles the mind.

The only right thing for AIG executives to do is to return the money and admit that their past mistakes have their company struggling to stay alive. No sensible investor would allow a company’s management to award itself for failure on such a scale, and executives who can’t realize that or understand just how politically charged their bailout is, certainly don’t deserve a bonus.

Con: Contracts Are Contracts

AIG makes for a good villain in the financial meltdown and its subsequent string of unpopular bailouts. Not only do tens of billions of dollars from government coffers go to the beleaguered insurer on a regular basis, with no end in sight, but now its executives are getting bonuses courtesy of Uncle Sam. Cue popular outrage and calls for the executives’ heads.

Before we pick up our torches and pitchforks, though, we have to realize two important matters the public has overlooked in the AIG bonus debacle.

First, the government cash keeping the company alive is a loan. AIG will have to pay it back when the worst is over, and should the company fail despite the bailout efforts, as an 80% stakeholder in the insurer, the government will look for ways to get its money back. As long as that money is repaid, AIG can use the dollars as it needs.

Second, we should take into account the way compensation in the financial industry is structured. Those bonuses were promised to the executives before their bets turned sour, and they’re a big part of their salary. Just as we want our paychecks because we’ve worked for them, the AIG executives are counting on those bonuses to pay their bills. Yes, they got caught up in a bubble and made bad bets, but if we go after everyone who bet big on the good times to keep on going, there would be very few people in the U.S. who wouldn’t have to give up their bonuses or cut their pay in penance.—G.F.

Opinions and conclusions expressed in the BusinessWeek.com Debate Room do not necessarily reflect the views of BusinessWeek, BusinessWeek.com, or The McGraw-Hill Companies.

Reader Comments

Robert A.

Just because something is a "contract" doesn't make it immune to legal challenge. Anyhow this issue has already been debated to death, and Team Obama already looks to already have a solution to this issue--they're poised to just tax the beejezus out of the bonus recipients to the tune of 90% or more, with said money returning instantly to the government bailout fund. There's more than one way to skin a cat, and Team Obama seems to have solved this issue in a very clever way, without violating the sanctity of any contract.

Mark-Anthony

Wow, is it just completely impossible for America comprehend unintended consequences?

1. Return of TARP money, so if you an executive at a bank that has taken TARP money that is scheduled to get a bonus, this would be a good time to resign or give the money back. Which isnt going to help the banking sector.

2. Goodbye talent, AIG, one divison screwed the pooch here. So if you managed say, Whole Life Insurance for High Net Worth Individuals, even though you meet sales goals and turned a profit you just lost your bonus, so I would leave and take my clients with me.

3. First rule of finance: Risk and rate of return. Even if this doesn't pass the muster in court, you have just increase someone's tax rate retroactively within a fiscal year. Now any new executives are going to have to be paid a lot more in salary.

Rochelle V.

I still love when Rachel Maddow tore into AIG for having a "list" of PR firms on its government-sponsored payroll http://bit.ly/11KPvD

Unreal.

Saul

They should absolutely return the bonus.

I bought a home and got a loan; it was a adjustable rate and at the teaser I could afford it. I was concerned that I would not be able to afford it in time, but the banker convinced me that I could simply refinance in time and I may even be able to take money out as the prices of homes went up. I even paid PMI.

Now I can barely make my payments, and there no way I am going to be able to refinance. But my wife and I will continue to do the best we can and make our payments. Nobody is offering us a bonus for screwing up.

At the end of the day, if the company went bankrupt these execs wouldn't get their bonuses.

As far as the talent argument goes, if we lose the geniuses that got us into this mess I am sure there will be able people to take their place. However if the have any metal, they should refuse their bonuses and even give up their salaries and just work to fix the problem because they can. I am sure they can afford it.

Selfishness and greed is what got us here. I doubt that will get us out.

Carol Braddock

GF,

Surely you jest.

"Second, we should take into account the way compensation in the financial industry is structured."

And we should take into account "how it was structured" before this kind of stuff happened on Wall Street.

Because when you realize, "It never would have happened (the bonus giving) in the first place. And what they were doing was stealing and lying knowing the investments were bad already."

It is about culture and greed. The greed nearly brought down everything. This is just the tips of the iceberg.

Jeffrey Smith

AIG would be bankrupt and unable to pay any bonuses without taxpayer support. It is our duty as taxpayers to be outraged and demand a cleanup of the crooks in charge of AIG who created this mess to begin with. These executives should be fired with extreme prejudice, not given bonuses. This type of corporate mentality is why AIG is effectively bankrupt.

Steeve

Bonuses are paid in relation to good performance--otherwise the amount would be included in the salary. What is the point of performance bonuses if you get it anyway if you produce or not? I am sure that even in AIG some deserved the bonuses, but in these times all should be happy to have a job in the first place. And what about Merrill? Their top execs rewarded themselves with 3.6 billion for the excellent job they did. (And got away with it since they got paid before the 31st of December).

David

"They need their bonus's to pay their bills"? What? If these execs need multimillions to "pay their bills," then that's just further proof of the mismanagement and lack of reality these people lived under. If their "bills" for home life required multi-millions just to survive, something is terribly wrong. The writer acts like these execs were living pay check to pay check like most Americans and therefore need the money. Reality is that any of these execs could have lived off their six figure salaries far better than most citizens and didn't need these undeserved bonuses to "pay bills."

jackson Kuruvilla

It should be noted that the government money that is been received by banks is a loan (but at a low interest rate) so that the banks don't go bankrupt and also people don't lose jobs.

Is a bonus a payout for poor performance? It's awesome conning to the poor taxpayer.

Al Quaida

They are the very people who brought down the financial system. They should be rounded up and sent to Guantanamo Bay.

R.G.

If you are really sick, not able to move about without help and have to undergo a drastic surgery for which you borrow money from someone, would you use that money to have a party just because you invited everyone to it before you fell ill?

Tony

Pro,
Contract is a contract, but in this case the contract is no longer binding as the condition that necessitated the contract is no longer in place by AIG accepting federal government bailouts. If the federal government had allowed AIG to go under, would the exes have collected bonuses?

I know of a company that did not take federal government bailout money, but because of the prevailing economic condition the CEO of the company elected to forgo his 2008 bonus, while all other employees of the company were paid bonuses, though the employees did not get yearly increase. AIG exes should follow the example like the one stated above and forgo their bonuses until the company becomes solvent.

Wake Up

How about a little common sense? The only thing more ridiculous than executive pay is celebrity and pro athlete salaries. It is time to level the playing field. No executive, no matter how good he or she might be, deserves to make more than $500,000 per year. No celebrity, athlete, actor, or recording artist, no matter how good he or she might be, deserves to make more than $500,000 per year. If they do, anything in excess of $500,000 should be taxed at 75% or donated to charity. A little humility is needed. Oh, and it's time for a flat tax.

Bob

Yes, AIG would be bankrupt without taxpayer money.

Yes, greed got us here and in a world where everyone sacrificed for the greater good, they would give their bonuses back.

But they aren't bankrupt and the world is not like that. Instead we are propping them up with our money.

With that in mind, since they are not bankrupt, I would prefer that the people at AIG and every other firm that has or will receive bailout funds, that this law would affect, not run for the hills and leave these firms with gaping holes in their staff.

They have enough problems, and no, I don't believe that "there are other people to replace them," because the more talented people (if they are indeed talented) know what they are worth and can go to another company that does not have these pay restrictions.

I would like to get the most out of our money (read: get it back) rather than have these firms slowly fail on our dime.

My $.02

Steve

Are the bonuses at Deutsche bank being scrutinized? AIG just sent billions over there to pay off on their toxic asset write-downs, as part of living up to their obligations of the credit default swaps.

I wonder if Nancy Pelosi and her cronies concocted this now never-ending 90% tax rate of executive bonus on one of her $100,000 jaunts back and forth to the west coast on Air Force jets?

I can hope we change all of them out of D.C. and send them all home and start over.

Steve
www.ins-solutions.com

BubbaRight

This is just populist banter. Those retention payments are under contract. The 90% tax law passed by the House will not pass legal muster and will be overturned by the courts. But more taxpayer money will be flushed away in the meantime in legal fees.

Al

First, do you think last week was the first the Obama administration heard of the bonus? Do you think it's scary that our government can decide to tax a group people at 90% for any reasons and get away with it. Who gets the $148,550,000? How much money did Obama and other politicians get to fund their campaigns and should they give that back?

PNW Trojan

The AIG execs, like their brethren on Wall Street, are just like Congress--rewarding themselves first and foremost for screwing up, the most. Does anyone see Congress taking any hits to their gross pay and benefits? Of course their RICO fundraising from Wall Street and AIG is no longer producing as much as before, but they're riding out your pain, very comfortably--at least until the 2010 and 2012 elections and then, it will be our turn to "do" Congress.

Fernando

Too greedy to know what ethics means?

Michigan Firefighter

Here's an idea that we all can live with, 305 million Americans, and the bailout was $780 billion, which would be about $1 million to $2 million per U.S. resident. What would you do with that money? Let's see, pay off the house or buy one--housing problem corrected. Pay off vehicles and buy a new one--automakers saved. Economy going again, wow that was easy.

Steve

Why don't those who received said bonuses donate them to charity? This way, they defuse the uproar. Congress can get off its high horse--the charities benefit, and we can get back to what's truly important?

This, of course, would require the bonus recipients to do something that's not self-serving. Ladies and gentlemen, do you have it in you? (One may only hope.)

Robin

I think they should have to pay it back, although, if they leave and pull out their clients the damage there has to be assessed. If
that destroys the company it would not have been worth it. I disagree with the overuse of the word greed. People in a capitalistic system are playing hardball to reel in as much money as possible out of fear as well as greed. Fear that you will be penniless, fear that you will lose your job, fear that your wife will leave you and you will have little money, fear of aging and death. Money seems a great answer to the pain and fear of the overall human condition. I think people are more fearful than they are greedy, frankly. The human condition and life in general is the problem. Money seems a good solution to alleviate the pain and suffering of living in the world.

Chuck Gaffney

As a small-business owner, mistakes cause me to lose money. These execs are nothing more than a bunch of people who are at the top rungs of the already failed corporate ladder. They are nowhere near the caliber of a business owner. They are nothing but a bunch of whining employees who think a position means X amount of dollars no matter what their performance is or was. As someone who's technically higher than they on the financial food chain, my message to them would be "You're fired!" In no way should they get any money for the trouble they caused. They should be in Mad off’s position or at the very least, in the same position as the beggars on the Manhattan streets.

Todd

Let them keep the money. I'm upset with the government for giving them the money in the first place. Shame on the government for giving them the money, then complaining about how it's spent.

Everyone one of them that voted for this bailout is who deserves our scorn.

Alan MacDonald

The seminal issue, much broader than AIG or the deceitful bonuses, is how to deal with an entire system that allows theft by dumping "negative externality cost" pollution (in this case "debt bombs") on our society.

Luckily, this issue has already been legally resolved in dealing with dangerous industrial products---"polluter pays" is the legal answer and has been the law of the land since the cigarette settlement, the case of W.R. Grace in "Civil Action" and Erin Brockovich against PG&E poisoning ground water.

The same legal solution can and must pertain to financial pollution cased by a financial firm that manufactures corrupt/dirty products designed to produce phony profits only by polluting the financial atmosphere.

Manufacturing products that a prudent man knows or should know will produce pollution to the commonwealth, and doing so merely to create the appearance of phony profits (when there really is no profit), is illegal whether the product is cigarettes, dirty chemicals, asbestos, or CDSs.

"Polluter pays" is the modern law of the land--in the U.S. and throughout the modern, sustainable world---and thus financial products producers like AIG FP ("financial products") must pay to clean up the damage their products created.

Polluter pays is the law and AIG (and most of all of the Wall Street corrupt investment banks, hedge funds, and integrated financial "super-markets" like Citi) that have been selling rotten financial meat, and "toxic waste" now have to pay for the pollution and financial sickness that their rotten products have caused.

Alan MacDonald
Sanford, Maine

roalndson

So, just where was anyone expecting these "executives" from AIG to jump ship to in the event their retention bonuses were withheld? With the economy in the toilet for well over the past year, is it truly expected that there existed anyplace else for them to land?

Actually, Michigan Firefighter, you have a point. So, does anyone really expect these clowns from AIG to hand the money back? I wouldn't, not without a court order--a supreme court order, because right now, there just isn't anyplace else to go for a job.

Thank you, George W. Aruba we we go.

Travis

ayres cayo

Congress: Like Obama's Special Olympic endeavor--Obama, Dodd, and Rangel all got $100,000 from AIG, and they intentionally inserted the bonus provision. They should help a lot more in reimbursing taxpayers. When I grow up I want to be Democrat--you raise taxes and don't have to pay them, you can have a love interest under your purview, send stimulus money to yourself.

Bill Odum

Regarding AIG, and the bonuses: AIG recipients, or any executive who received bonuses in businesses that require taxpayers' money to survive should either give bonus money back, or be made to give it back with escalating fines. These bonuses make a mockery of rewards for success; they are considered theft; they undermine the capitalistic system. Show me a professional sports team that rewards its manager for losing ball games.

Jeff B

OKay, I am for AIG execs giving back the bonuses, but here's my question: Does Senate Banking Chairman Chris Dodd have to give back the huge campaign contributions he got from AIG, that encouraged him to add in the clause that permitted these bonuses?

AIG Scapegoats

AIG executives are just populist scapegoats. Without knowing exactly what the AIG recipients did for their bonuses, only political demagogues (class warfare) would single out private citizens for restitution. Even if the AIG executives may have contributed to the financial mess, they hardly were the root cause of it. But if the President Obama and the IRS are planning to punish these individuals, then they need to punish all who are responsible, including politicians like guilt-free Barney Frank and Chris Dodd and greedy homeowners who spent their inflated home equity.

Karl

When a contract is held by the U.A.W., it is a wish. It has no more substance than a dream. It is disposable. When a contract is held by an executive, it is an iron-clad document that cannot be discussed. Can someone explain to me the difference?

Andy

If I am an auto technician and I screwed up your car so bad that it doesn't run anymore, will you give me a bonus? There is nothing more to discuss. If we have a problem with this common sense, we're in a big trouble. Oh wait--we're in big trouble. There should be legislation stating that publicly traded corporations are not allowed to give bonuses when the company doesn't make a profit. And the amount of the bonus should not be more than the amount of profit. It's common sense. I can't believe we're debating this. And look where we are now.

jobie jobe

Let's quit beating up the executives who took the bonus money. How about questioning the folks at AIG who wrote the checks? They could have just said no to bonuses under the present circumstances and sat their pens down. Think about it--if someone is going to write a big fat check and hand it to you, are you really going to say, "No thanks"? As far as I can see, the decision to pay these bonuses in the first place is where the stupidity began.

Tonks Plum

Congress was the one who approved the bonuses they assumed, wrongly, that we would not mind. AIG should be allowed to die but they are not the only ones whose heads should roll.

Stop accepting scapegoats, people.

Andrew Gregory

So I played risk/reward and lost. And I still get my paycheck. No, come down here with the rest of us and stress about the milk bill--not my house in the Hamptons.

Bob

Okay, the idea of retention bonuses makes sense. I have worked many places where they pay you to stay and clean up a project while the others in the group are fired or layoff. The reason for the bonus is to offset your not being able to get the jump out in the job market with the rest of your peers. Having said that, what freakin' idiot said, "It's September. You stay till, January and we will pay you $1 million in bonuses?" We have to honor that contact? Please. And while we are at it, can someone please haul Hank Greenberg off to the old folks home before he spits up on himself? If I have to see this fossil on TV or read him here in BusinessWeek spouting his ramblings about how he knows how to save AIG, I am gonna puke. He started the FPD at AIG. He got his ass thrown out of there. So how bad was he? By the way, he is now suing AIG because his retirement stock is now worthless. Get in line, Hank.

Dan J. Lorey

Okay, you should not be giving these execs these bonuses when average everday joes work hard as hell for their money.

Texas Cow

To steal taxpayers' money is shameful conduct for AIG.

Jorge (Texas)

These AIG execs probably think morals are paintings that go on walls, and have no problem about taking millions of taxpayer dollars. "They say that when good Americans die they go to Paris." Oscar Wilde A Woman of No Importance, Act I.
If so, where will AIG execs go?

David Tubbs

I think we're asking the wrong questions.
1) Why was this (bonus payouts) allowed to happen in the first place?
2) What is being done to prevent this from recurring?
3) Where do you draw the line? Who determines the limits on bonuses paid out or whether to cancel them completely?
4) Why wasn't there a provision in TARP that prevented this from occurring in the first place?
5) Why are we focussing on the AIG bonus payouts when there are many others doing the same?
6) Could the government be to blame for reckless spending?
7) Is the AIG scandal distracting us from more important scandals? More important, is it being used as a decoy?

Based on the number of respondents, it's obvious to me that many of you are so focussed on this issue. This is not a good time to get distracted, people.

RR

All of this is confirmation that this country leads by deception--and they get highly rewarded for it. What a disgrace.

Herman Goring

Let the AIG executives have their money. They earned it. I made a lot more than them sitting on my fat ass. But a deal was made and they must stick to it. A deal's a deal, and this is business after all.

I'd be outraged if anyone asked for my money back. I really like being one of the richest people around. Screw those peasant taxpayers--they're imbeciles. They voted twice for a president who is dumber than a 5 year old.

jw

I have no dog in the hunt. I have been in the business world since the 1960s. I have never seen such a disgusting display of pandering, mob rule, mob and thug tactics, unfair attacks, cowardly intimidation, etc.

Don't wait for the facts--just plow ahead and act like the brownshirts in Hitler's Germany. Just trample on the Constitution that likely few if any of you have read recently or have ever read.

This is the greatest nation in the world and capitalism here has grown personal/household net worth on a nominal basis from less than $1 trillion in 1945 to a peak of about $63 trillion in 2007. On an inflation adjusted basis, it has grown in real terms at 3.3% compounded per annum.

This is largely a phony financial crisis primarily due to mark-to-market accounting reintroduced in 2007 and which FDR suspended in 1938 after so many bank failures. One major institution had to report almost 20 times the actual expected loss from subprime home loans because of mark-to-market (M-T-M) accounting. The question is how much is the real expected loss versus the phony, contrived mark-to-market loss in a fire-sale market. The reason the banks do not want to sell on the cheap is that they know the loans are worth so much more than they are forced to report by M-T-M.

The public and pension funds have lost a large fortune--more than $10 trillion--due to accounting overreach. The public should be mad at this, not AIG. AIG's losses would not be so substantial without mark-to-market accounting. It set off falling dominos, and let's stop the dominos' falling by suspending M-T-M.

RR

This is a clear indication as to why this country leads by deception and the corrupt people involved gets heavily awarded. What a disgrace.

Brian H

What stupid comments.

The bonuses were to retain those charged with relieving AIG of toxic assets. They got rid of about $1 trillion. That's a payoff ratio of about 6000:1.

It was a helluva good bargain.

ucdmld

Shame on G.F. for trying to tell us that a contract is a contract. He could only be an American. Doesn't the contract he is talking about enjoin the contractee to keep the company afloat and profitable and to reward the shareholders instead of the top crooks dipping their hand in the till because they happen to have been given the authority and know the chicanery it takes to reward themselves to run the company into the ground? In America, it is called genius and in other countries theft, corruption, embezzlement, etc.

JDL51

Republican talking heads were screaming for the UAW contracts to be torn up before they gave the auto industry a dime last December. Now they're falling all over themselves about how sacred contracts are and it would destroy the financial institutions if they couldn't rely on their contracts when it involves executive pay. Why anyone at AIG or other banking institutions that have been at the heart of our crisis deserve bonuses is beyond me. The sense of entitlement from executives nowadays for even the worst performance is what angers most people. Every day there is a story in the media about overcompensation, lavish office expenditures, and millions for corporate jets, all from companies that are going under or receiving government bailouts. There is no shame or sense of responsibility anymore.

Ghosh - Indian

This is hilarious! The presidential rhetoric sounds exactly the way Indian Communists sounded, in the state of West Bengal.

Since then (30 years back), from being the richest state in India, today, Bengal is reduced to have become the poorest Indian state, which businesses refuse to touch.

Please do not make the same mistakes that we made, earlier.

American Hero

A contract is a contract. AIG executives have a "contract" to perform with due diligence, a good job that returns profits and equity to shareholders. Since this particular set of executives did a lousy job, lost money, and returned negative equity to shareholders, the contract implies that they do not receive a bonus.

Definition: Bonus--a reward for a job well done.

By the way, these clowns went to "B" schools. Isn't it time we got the grad students from the "A" schools?

sam

Is a contract to commit a crime valid?

Curtis Hammond

At first glance this sounds like a rip off of the American people, but once the veneer is pulled back and you realize that the folks that decided to stay once AIG basically failed have been working on a contract basis, calling them bonuses is not really truth in advertising. They are delayed compensation for working without pay for the year. Why are they being called bonuses? Sounds good I guess to the media hounds. AIG is a boondoggle caused by another boondoggle namely GS and others repackaging suspect derivatives. They were the insurer of these suspect investments and much like the FDIC who has to have cash managed to spend all the money they should have had in reserve to cover losses--realizing that few could have calculated the magnitude of mismanagement of the banks. To ask the remaining employees to work without contracted compensation is unjust and unlawful when it comes down to it.

Peter Knight

There are 3 problems here:
1. Execs in the finance industry have far too high a self opinion of their worth.
2. The government failed in proper oversight to insist these contracts were voided before giving money to these institutions.
Any employee refusing to void his contract should have been fired.
3. I don't think we can expect people to volunteer to give up money--so the tax is best recovery plan to emerge so far.

Jeff Montgomery

It is not government's place to tell business how to spend their money. If the problem is that the government wants to manage what it's footing the bill for, well, the obvious solution is to stop paying companies to fail. Get government out of the way so the failed companies can go into bankruptcy and we can pick up the pieces and get on with the healing. Keeping such companies around only punishes companies who didn't do anything stupid and does not do anything to remove the damage done.

Randy

You want your money back right?

1: If they take the bonus back it is a violation of a contract.

2: If the execs feel they're contracts are being violated, they will leave the company.

3: If the execs leave the company there are holes in the company that need to be filled.

4: Noone will want to fill those holes because they know that if they make good money, the government will tax it to take it back.

5: If noone fills those holes, the company's performance will decline(more).

6: If the company's performance declines more, It will never be able to pay the taxpayers money back.

Oh yeah one more thing, It's not your money. If it were your money you would have the choice to give it to AIG or not. It's the governments money. They unconstitutionally took it fair and square.

Rannie C. Agustin

I have been supplying constructive criticism for AIG vis a vis multi-million bonuses. This time, I suggest that the bonuses paid in errors should be corrected by making them cash advances and deductible from monthly compensation in 1 to 2 years. Returning the bonuses would be difficult for most of them for they are spent already. Let us be fair to everybody in pursuit of ethical standards.

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