Friday, March 20, 2009
MY TAKE ON THE A.I.G. BONUS MESS
First off, I'm appalled that these bonuses were handed out, nearly 170 million dollars worth this past weekend to the top executives at American International Group (AIG). The bonuses come as AIG reports billions of dollars in lost revenue during the fourth quarter and worse yet, it follows a multi billion dollar U.S. bailout of the struggling insurance giant.
Despite that, there's not much the government can do to reverse the bonuses. Here's why. Like radio and t.v. personalities, these executives have personal service contracts, negotiated in many cases well before the bailout money arrived. There are many reasons for bonuses. In broadcasting, for instance, they're typically based on ratings performance. If your ratings go up, you get the previously negotiated amount for a percentage increase in listenership. Signing bonuses are used to lure good people away from other firms. Executives in broadcasting can get bonuses based on ratings, as well, but more often they are rewarded for making budget and keeping costs down.
At AIG, there is likely a comprehensive bonus structure. Some may get extra cash for securing a certain level of new clients, retaining certain clients or simply to insure that an employee doesn't bolt from one company to another for more money. Bonuses are also paid based on how well the company performs in terms of revenue and the like. So while AIG didn't perform well, it's very possible contracts obligated AIG to pay out bonuses based on other factors.
Still, some of those receiving bonuses no longer work for AIG, contradicting earlier comments from top executives that bonuses were ALL paid to current employees based on contractual agreements. If this is the case, the government can't really intervene to reverse the bonuses. However, it needs to look forward.
What Congress is doing now, appears to be on the right track. From here on out, a clause of any bailout agreement, must prohibit these companies from doling out FUTURE bonuses. What we don't want companies doing is handing out bonus checks as a preemptive strike, while lawmakers construct a new set of guidelines. I could easily imagine banks and insurance giants quickly shuffling to arrange bonuses before Congress can act. Here's what Congress can do then. It can take the equivalent of the company's bonus payout in tax penalties, if the perks were handed out thanks to government bailout money. This is also being discussed in Congress.
Keep in mind, this is not a Republican or Democrat issue. This has polarized lawmakers on both sides of aisle and it needs strong bipartisan support and a clear, powerful mandate from President Obama. He needs to stand arm and arm with Republican leaders to say our government won't tolerate this sort of abuse of U.S. taxpayers dollars, as Americans continue to lose jobs and struggle in sick economy.