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.
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