AIG Bonuses: Why Incompetent Pseudo-Nationalization Is Worst Policy

Because AIG is paying bonuses to the division that created a lot of Big Shitpile (italics mine):

The American International Group, which has received more than $170 billion in taxpayer bailout money from the Treasury and Federal Reserve, plans to pay about $165 million in bonuses by Sunday to executives in the same business unit that brought the company to the brink of collapse last year.

Word of the bonuses last week stirred such deep consternation inside the Obama administration that Treasury Secretary Timothy F. Geithner told the firm they were unacceptable and demanded they be renegotiated, a senior administration official said. But the bonuses will go forward because lawyers said the firm was contractually obligated to pay them.

The payments to A.I.G.'s financial products unit are in addition to $121 million in previously scheduled bonuses for the company's senior executives and 6,400 employees across the sprawling corporation. Mr. Geithner last week pressured A.I.G. to cut the $9.6 million going to the top 50 executives in half and tie the rest to performance.

This is why you restructure them--that is declare them bankrupt or, if you prefer, temporarily nationalize them.

Impeach Geithner. Impeach him now.

More like this

Why exactly it is called a bonus (as opposed to salary) if a company is legally obliged to pay it, even if the company was on the verge of going bankrupt?

GM and Chrysler have contractual obligations to their hourly workers but those workers are expected to agree to wage and benefit cuts as a condition of their bailouts---that is before any cuts that will happen should the companies go into bankruptcy.

Apparently it is only working class wages that are subject to bailout restrictions.

There is another possibility (and I sure as hell hope that something like this is the explanation). The Rethugs are dead set against nationalization (despite the fact that we do this to smaller banks all the time), and they've managed to get a few moderate Dems on board their anti-nationalization train. The Obama administration simply doesn't have the votes in the Senate to do the right thing and start nationalizing banks.

But these bonuses give them ammunition. You see, when the administration says "the bonuses will go forward because lawyers said the firm was contractually obligated to pay them," the implication is ... unless we nationalize *wink wink*. So Obama and Geithner saying "our hands are tied" is a message to "moderate Dems" to stop opposing nationalization.

At least I hope that that's the case.

But these bonuses give them ammunition. You see, when the administration says "the bonuses will go forward because lawyers said the firm was contractually obligated to pay them," the implication is ... unless we nationalize *wink wink*. So Obama and Geithner saying "our hands are tied" is a message to "moderate Dems" to stop opposing nationalization.

At least I hope that that's the case.

This is what a certain sector of Obamaphiles says every fucking time that he does something that is not progressive: "Oh, it's just some double-secret reverse jiu-jitsu, and really he is working towards progressive ends." The sad reality is that Obama and, in particular, his entire economic team are friends and colleagues of the rich-ass motherfuckers that fucked everything all to hell. They're not going to deny their buddies their bonuses.

Beebeeo, they are called bonuses because they are contractually obligated to pay them if the relevant teams and departments manage to meet certain goals. Hence they are not part of the default salary.

Joshua, If a company requires the GDP of a small country in the form of bailout to stop from going belly up do you honestly believe that their management team should be rewarded for meeting their goals?

Evidently the management teams "goals" must have included the destruction of the American economy.

Really piss poor comp structure. Any decent bonus structure should be founded upon three principles:

  • Corporate performance that FUNDS the bonus pool (i.e. if the company is in the toilet, the funds available for bonus will be small)
  • Business Unit performance, that directs the proportional distribution of funds from the common pool, according to agreed formulae (so that shit-hot beats shit-poor)
  • Individual performance, that directs proportional distribution of funds from the resulting group pool (a weighted percentage of salary, or some other metric)

Obviously the folks at AIG don't know squat about structuring bonus plans to survive a downturn in profitability. Maybe they should have asked a professional?

Mike, I want to send you an earthshaking message with supporting graphics about the next phase after nationalization, but hotmail (your current email server) apparently rejects all messages from the Czech Republic. Do you have a different email address? If yes, would you please send it to me?

[You'll understand why I want to remain anonymous after you read my message. Sorry.]

By Anonymous (not verified) on 27 May 2009 #permalink