Comments on: America Has Gone Mad! (The AIG Bonus Payments Should Be Defended!)

By: chikara

chikara — Tue, 22 Nov 2011 22:38:48 +0000

Hmmm I can not seem to access a few of your hyperlinks. I wonder if it is my Internet Explorer browser or your homepage.

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By: DL-Phenylalanine Dos

DL-Phenylalanine Dos — Fri, 29 Oct 2010 00:22:18 +0000

government jobs are still the best when it comes to job security "`'

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By: David Dzidzikashvili

David Dzidzikashvili — Mon, 06 Apr 2009 11:16:30 +0000

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's 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 from left and right. How come nobody is thinking about bailing out the middle class that is losing jobs and homes? Maybe we should reward them instead of giving more cash to the greedy?

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By: Bjorn Borgers

Bjorn Borgers — Sun, 29 Mar 2009 22:49:15 +0000

I very much agree with Mr. Latter, bonuses should be payed and defended. Whilst in this case these bonuses are retention bonuses, I also feel that the same should be said for performance bonuses. Sometimes these performance bonuses are even part of the work contract, and there should be absolutely no reason that these are not payed. It is however difficult to justify to the tax payers that these people deserve a bonus. Some may argue that without the bailout these people, among the many others, would be without a job, not even thinking about a bonus. Yet on the other hand, the incentive to perform even better than what is expected of one, is what could save a firm like AIG. These people should not only receive a retention bonus, but if they also perform even better than expected, they should receive a performance bonuses as well, since it could help to bring AIG to a healthy stand point again. Bonuses are obviously a very controversial issue, since it does lead to people taking larger risks, which some may argue has led to the crisis. I however like to compare bonuses to a payment for over-hours. If you work longer than is expected (by contract) of you, then you will receive extra pay (usually). This system is usually used in more labour intensive firms. Similarly if one performs better than expected, one can expect a bonus (if the firm has decided to embrace the bonus system). Whilst it is more difficult to measure "how well" one has done, it only seems fair to reward those who have done well.

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By: Steve Latter

Steve Latter — Thu, 26 Mar 2009 03:58:41 +0000

Hi Gary,

I think you found the "execitive compensation" blogs under the tab "Incentives" on the far right of our site.

Here are a few on "Too Big To Fail":

http://www.time.com/time/business/article/0,8599,…

http://www.nytimes.com/2008/07/20/weekinreview/20…

http://corner.nationalreview.com/post/?q=MjdkYTc0…

Hope this helps.

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By: Gary Williams

Gary Williams — Thu, 26 Mar 2009 02:47:06 +0000

Thank you for the gracious response.

I've looked over on the right-hand side of the page for discussions of the economics of compensation and the economics of "too big to fail", but without success. Are these topics under discussion somewhere at this site that I have missed?

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By: Steve Latter

Steve Latter — Thu, 26 Mar 2009 02:37:14 +0000

Hi Gary,

Great points! Unfortunately, the modus operandi in Corporate America is still to make "severence payments" to executives as they are being dismissed or fired. So, I am only guessing but I would bet $1,000 to a $1 that the dismised AIG employees that created the decisions have all received a going away present call "severence"!

I think the executive compensation packages will start to change and severence packages or "golden parachutes" will become less generous with all the public scrutiny that is happpening. This is good. Executive compensation packages have risen too fast relative to the "worker bees" salaries. Today's financial problems at least help us out for the future by creating visibility and pressure to make executive contracts less lucrative.

Here is a copy of the resignation letter from one of the key executives from AIG's Financial Products division that just resigned this week:

http://www.nytimes.com/2009/03/25/opinion/25desan…

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By: Gary Williams

Gary Williams — Thu, 26 Mar 2009 00:59:58 +0000

I think it's not unlikely that the wrong people are being punished, tarred by association with the very name A.I.G. But what I'm not clear on is whether those who caused the debacle have suffered in proportion to their stupidity and greed. Sure, they may have lost their jobs…but how many of them have simply transitioned into some other highly remunerative occupation? And what became of the chief of the financial products unit and the CEO who failed in his supervision? Yes, they are no longer with A.I.G. But are they currently sleeping under bridges, or did they receive handsome payoffs to go away? I stop short of saying they should be taken out and shot, but perhaps if they had any sense of honor or shame they would have performed seppuku by now.

Now, the crime these guys committed was insuring assets without having adequate reserves. And they failed to provide adequate reserves because they assumed that housing markets could never go into decline. I don't fault them for the assumption; I made the same one. But I didn't get paid millions of dollars a year for being wrong.

Of course, that's all looking backward. Is there a discussion here or anywhere on what steps can be taken looking forward to insure that no segment of the economy and no financial or other institution ever again becomes "too large to fail"?

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By: Steve Latter

Steve Latter — Tue, 24 Mar 2009 17:20:39 +0000

Check this article out:

http://money.cnn.com/2009/03/23/news/companies/ai…

Yesterday at 5:00 pm was the day the AIG bonuses were asked to be returned by the employees that are working out the derivative risk to protect the taxpayers money.

The above link report that yesterday afternoon a handful of AIG Financial Products' executives responsible for leading the clean-up effort have resigned and that more employees of the 370-person, clean-up crew are about to to follow.

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By: Steve Latter

Steve Latter — Tue, 24 Mar 2009 05:35:09 +0000

Hi Debra and Jacob,

Thanks for the posts.

Here is the link to an excellent Washington Post article on the subject:

http://www.washingtonpost.com/wp-dyn/content/arti…

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By: Jacob Welchans

Jacob Welchans — Tue, 24 Mar 2009 05:06:53 +0000

Thanks for the articles!

"The handful of people who championed the now-infamous credit-default swaps are, by nearly every account, long since departed. Those left behind to clean up the mess, most of whom never lost a dime for AIG, think they have been sold out by Congress and the president."

I will say that I've learned a bit more about this situation and do feel a bit better about it. Thanks for that.

I also wanted to let you know that your website was a critical part of my survival plan last year as a first-year teacher and first-year AP Macro teacher. You've got a great resource here. I directed my students to it more than once.

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By: Debra

Debra — Tue, 24 Mar 2009 03:12:39 +0000

This is the first intelligent article on this subject that I have read.

In my opinion, this "outrage," is manufactured by mainstream media, grappling for compelling stories amongst the dismal financial news. The same broadcasters who are screaming "outrage!" make large bonuses every year themselves, and they were also the same people who were praising many of these companies only a short time ago.

I, too, wish that at least one responsible party would take the time to explain exactly why the bonuses were received, and that it's a small amount of money for a company of AIG's size.

I also don't understand how the media is defining "public," as if the people who work for AIG are no longer a part of the public. Villianizing workers is really irresponsible. It reminds me of how sensationalized the beginning of the war in Iraq was.

I am a Obama supporter, but I am starting to understand why some governors didn't want any parts of this money.

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By: Steve Latter

Steve Latter — Mon, 23 Mar 2009 17:15:08 +0000

Hi Jacob,

Here is one article from the New York Times, reprinted with permission by the Seattle Times that you might find interesting:

http://seattletimes.nwsource.com/html/nationworld…

Also, you might want to check out the March 17th front-page story in the Washington Post on this very topic.

Regards,

Steve

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By: Jacob Welchans

Jacob Welchans — Mon, 23 Mar 2009 11:05:34 +0000

"as these employees working out the problems that they did not create are already starting to resign."

Is there an article or something I could read that reports on how all the workers that laid the foundation for AIG's problem have been let go? It just seems hard to accept that it is only over-achieving successful workers still employed at AIG and collecting these bonuses.

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By: Steve Latter

Steve Latter — Mon, 23 Mar 2009 05:48:17 +0000

Hello Joyce,

You represent one of the many Americans that I was writing about in my blog that are upset at these bonus payments. I am not surprised by your response as it is similar to the vast majority of Americans.

Let me address your questions by your numbering scheme:

1. You said: "no bonus money was paid to people who have left AIG? I heard the opposite on the news channels".

Response: You are correct. But why did you say "I heard the opposite on the news channels". My blog was centered squarely on the recent bonus payments for CURRENT employees who were retained under AIG's new management to fix the derivative mess created by the already fired AIG employees that caused it.

2. You said: "no bonus money went to anyone who caused the very problems that sunk AIG? Again, I heard the opposite on the news channels".

Response: I have no hard facts for you on your question. I did not research that question. My guess is clearly that there were bonus payments of some type. But again, my blog post was centered squarely on the recent $165B in retention bonuses to CURRENT employees who are working to clear up the financial mess.

3. You said: "the top 7 AIG execs are not taking any bonuses?

Response: That is correct. I have heard this on the news several times. If you are looking for a written source I just accessed a Tuesday, March 17th Washington Post fron page article that confirms this. AIG's top 7 officials, including CEO Liddy, have agreed to forego any bonuses though the end of this year.

4. You said: "the next 43 execs were excluded from bonus money?"

Response: That is not what I said in my orignial blog post above. I said that the current $165B retention bonus payout being so widely discussed did not include any monies for the next 43 highest paid executives. These executives have had their bonuses restructured with a larger portion being based on recovery of taxpayer money and the successful restructuring of the company.

5. You said: "that no one who helped create the AIG problems is not receiving bonuses, no matter how you define them?

Response: I can't validate this to your absolute level of detail. The Financial Products division has "cleaned house", the former CEO has been dismissed, and AIG has represented this.

Your frustration and position may be best summed up by this statement made in your comment:

"The point is that in most other businesses, if you take ridiculous risks, which all economists say AIG did (I read that AIG borrowed $30 for every $1 it made), you suffer the consequences"

What you say above is absolutely true. I addressed this very point in the last paragraph of my blog posting. But let's not "throw the baby out with the bathwater" by overerreacting and taking away all incentive based compensation from the GOOD employees that are working these issues on a going forward basis. That is my main point. If the government wants this mess cleaned up, they need to pay GOOD employees to fix it. I say that retention bonuses for discontinued divisions with billions of dollars of derivative risk is prudent management and practiced by every single corporation that I have ever heard of!

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