The $165 million was payable to executives by Sunday and was part of a larger total payout reportedly valued at $450 million. The company has benefited from more than $170 billion in a federal rescue.
AIG reported this month that it had lost $61.7 billion for the fourth quarter of last year, the largest corporate loss in history. The bulk of the payments at issue cover AIG Financial Products, the unit of the company that sold credit default swaps, the risky contracts that caused massive losses for the insurer.
I agree that it is reckless and irresponsible to pay bonuses when the company failed to make any money and has been basically on life support by the federal government (nee the American Taxpayer.) The trouble here is the compensation model in the financial industry. Annual bonuses are part of the compensation structure.
Typically an employee is paid a decent annual salary with a bonus target that is set based upon their seniority. (Sales bonuses are totally different - you sell you get a cut, you don't and you are paid accordingly.) These bonuses are paid to employees at almost every level, it isn't just the private bathroom type executives that expect to get a percentage of their salary each year as a 'bonus' the lowly Administrative Assistant has a bonus target as part of their comp. plan. Granted the Admin will have a much smaller target (5%) where I've seen targets up to 40%, and I'm SURE that there are higher bonuses paid at the super executive levels.
Year after year, if the company met certain targets, bonuses were paid at 100% of the target amount, and if an employee performed very well, bonuses could be paid at 120-130% of the target. (I call this HR math. You're eligible for $5,000 and some how you get paid $6,250.)
Employees believe that their annual salary is less than it would be if the bonuses weren't part of the picture. And, this is an industry issue, not an AIG issue. Until most of the financial services companies stop the "bonus" mentality only the companies that offer bonuses will retain their high talent.
I will say that the bonus thing was a nice perk and it was shocking to see that only the amount was adjusted due to our "situation". I confess that I didn't have the character to refuse the annual bonus this year. I felt somewhat entitled to something based on the horrific hit my stock portfolio took in light of the failure of the Goliath to survive their misadventures in lending. Does it make it right? No.
Should AIG pay bonuses out of federal monies? Absolutely not.
Are the people who will likely be hurt by the withholding of this payment directly responsible for the AIG fiasco? Probably not.
Will the entire industry change the way it compensates employees? It is doubtful.
Should the President intervene? That is a question for a much smarter blogger than me.
It is my guess that there are plenty of AIG employees who are only hanging out at AIG waiting for bonus payment day. Once the payments are made (or not) they will exercise their networks and move on. There was always an increased Exodus of talent after bonus day.
2 comments:
AIG should have been allowed to fail and go the way of the dinosaur. So instead of failure, which is what it is, it's allowed to hang around absorbing resources while generating more financial bleed.
I believe the bonus payout excesses at AIG are just the tip of the iceberg of what is happening with the other Wall Street bailouts including Bank of America. Working productive Americans are bailing out the same crooks that destroyed our economy along with 45% of the wealth in the world. Now the American taxpayers and our posterity will be forced to live a far lower standard of living with reduced prosperity and opportunities due to the accumulated national debt to fund the bailouts and once again we will pay the price.
Washington has bailed out the banks, Wall Street & their Washington special interests and much of the cost is added to the national debt to by paid by this and future generations while real estate and investments continue to fall. I believe Washington plans to monetize the debt in future years while they tax and destroy our remaining wealth by depreciating the dollar.
To stop this wealth attack, the Campaign to Cancel the Washington National Debt By 12/21/2012 Constitutional Amendment is beginning now in the U.S. See: http://www.facebook.com/group.php?gid=67594690498&ref=ts
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