In a March 17, 2009 article in New York Times Times editor Andrew Ross Sorkin asks “Do we really have to foot the bill for those bonuses at AIG?” He supports the proposition on two fronts:
- It’s contractual and business would be worse off if the government “would start abrogating contracts left and right”; and
- that these bonuses retain folks who can a) fix the mess and b) if not incented to stay, “quite possibly, be put it to work at a competing firm against taxpayers’ interests.”
The problem with these arguments is that the landscape has changed. The government (representing us taxpayers, by the way) owns 80% of the company, and like any 80% owner is following the “golden rule” namely, “the one with the gold makes the rules”. One can’t support the “new bailout landscape” on one hand and oppose the “new rules” associated with the bailout on the other. You can’t call the bailouts “unconstitutional” on one hand, and call any use of the funds “legal and binding” on the other – it seems disingenuous.
So if it turns out that the bonus money is to be recouped, the excise tax seems like a pretty elegant way out of this. And, by the way, the $165 million in bonus contracts was, apparently, not even meant as a long term retention tool. Of the 73 recipients, 11, that’s 15%, have already left AIG. This equates to expected turnover levels under “business as usual conditions”. If anything, the bonuses probably bankrolled the exits and I question whether the “best and brightest” are among the 62 remaining, especially given the link between emotional intelligence and performance.
Maybe these will turn out to be a “stay bonus” designed to retain people through 2008 and time will tell whether their staying was worth what they were paid.
Being a taxpayer, and therefore one of the quasi-owners of this company I question not only the bonus payments, but also the quality of the advice provided to AIG. The destruction of their brand cannot be worth the $165 million. Email Robert Cirkiel at firstname.lastname@example.org