When Ed Liddy took the reins of troubled insurance giant AIG, he probably thought it would be tough. I’m guessing he had no idea how tough. Today, Liddy will face the House Financial Services subcommittee on capital markets in DC, and chances are, he’s in for a flogging.
It’s now been made clear that AIG will have to return $165 million that it paid out in executive bonuses to the Treasury Department in 2009. According to Geithner: “We will impose on AIG a contractual commitment to pay the treasury from the operations of the company the amount of the retention awards just paid. In addition, we will deduct from the $30 billion in assistance an amount equal to the amount of those payments.” That’s right, double.
Public anger over the bonuses has not subsided. The bonuses, which total more than $165 million were said to be contractual “retention” bonuses. It has since been revealed that at least 11 of the 73 employees (15%) that took the money no longer work for AIG – so much for retention, huh? Additionally, the sector which received the bonuses, the financial products sector, has been charged with the primary blame for the AIG meltdown. In other words, these folks help run the company into the ground and got a nice big check for doing so.
All of this while AIG is operating on $170 billion in bailout money – $150 billion of which was promised before the provisions of TARP even took effect (thanks, ex-Secretary Paulson). AIG is scheduled to receive another $30 billion this year. That’s about the same amount of money the Big Three automakers asked for in the fall – you know, when we made them jump through some (potentially deserving) hoops to prove that they would be responsible with our money.
Of course, the bonus situations really should come as no surprise. This is the same company that, just days after receiving its first bailout payments in 2008, sent executives on a $440,000 retreat to a posh California resort. Those same executives – the ones who are perhaps indirectly responsible for massive layoffs that followed – spent the equivalent of two full years’ salary for someone making minimum wage in just a few days on spa treatments alone. Yep, spa treatments.
Congress sat back and let it happen. And now, they’re apparently waking up.
Just a day after Sen. Max Baucus (D-MT) suggested an excise tax on the bonuses, a key GOP Senator has stepped in to support the idea. Sen. Chuck Grassley (R-IA), who is the top-ranking Republican on the Senate Finance Committee, will lead the vote on a measure which makes all retention bonuses subject to a 35% excise tax for excessive compensation to be paid by the company and by the individual. Non-retention bonuses of more than $50,000 would be subject to the same tax. If passed, the provisions would be retroactive to January 1, 2009, which means those AIG bonuses would be taxable under the new scheme.
AIG has since pledged to reduce 2009 bonuses by about 30%. They claim they need to keep their bonus structure – but do they? All of this talk of “talent” jumping ship if the company does away with the bonus structure is crazy. Where is the talent to begin with? If “talent” like that is what’s holding AIG together, then maybe it’s time for AIG to redefine the meaning of talent.
Here’s the thing: millions of Americans go to work every day and (gasp) do their job without being promised a little something extra. I know that’s hard for folks on Wall Street to understand, but it’s true. Even law firms are learning that paying out bonuses for simply showing up and doing your job is a bad idea: BigLaw, in the midst of thousands of legal layoffs, is scaling back – and in some cases eliminating – bonuses. You’re not owed a bonus, you earn a bonus. The definition of a bonus is “a gift to reward performance.” Just think about that.
Grassley has. On yesterday, remarking on the bonuses, he said, “there’s just so much that the taxpayers of this country are going to stand for.” And he’s right.
It seems like the outrage at AIG is overstated. Since we don’t know who got the bonuses, or for what, it’s really hard to know whether or not we’re getting a good deal. Keep in mind that although AIG lost money on credit derivatives in the aggregate, people do make money on them, too — John Paulson took home the largest annual compensation in history because of his derivatives trading. So there’s a very good chance that many people at AIG Financial Products are doing profitable stuff like arbitrage, or making a market in credit derivatives — stuff they could be doing for someone who isn’t owned by the government, too.
But thanks to the bad PR they’re getting, AIG’s best traders are probably going to leave. They’ll go from working for a company 80%+ owned by taxpayers to a private entity, and the private sector will keep much more of what they make. Oh well.
A million bucks is a good deal. I’d be happy to take it — for losing less money than those jokers at AIG did! And now they’re trying to hide behind “privacy” concerns, to try and prevent disclosure of who’s getting the money? Give me a break.
With “talent” like theirs, who needs incompetence?
Urb
I find it appaling that ANYONE at AIG is getting a bonus. With my current employer I’m ‘eligible’ to receive an annual bonus, but that’s all predicated on the company meeting it’s financial and quality targets. And guess what…even though we actually MADE money last year (not like AIG) since we didn’t meet our target…no bonus for anyone. How novel of a concept…linking bonuses to the finances of the company. You would think financial and insurance institutions would get that.
Those people at AIG have really created a firestorm of controversy. They take bail out money and waste it on luxury items and bonuses. This latest round cost a whopping 165 million. Ah, what I could do with that much money.
It has gotten to the point that the people that received the money, if revealed, should fear for their lives. There are a lot of angry citizens that could try and take matters into their own hands, especially if they feel they lost their jobs due to companies like AIG.
Now if we could just get a little perspective on this matter, we could actually make real and lasting change in this country. 165 million dollars is a pimple on a knats rear end compared to the daily waste and abuse of our governments. Congress wastes more money in a week than AIG wastes in a lifetime. People like Barney Frank, Maxine waters, Chris Dodd, et al, love to confiscate our money and throw it away on frivolous spending. They, and many others on both sides of the isle, were behind the housing boom and bust. They had an opportunity to stop this madness before it got out of control. They have continually appropriated and wasted billions yearly and they are now sitting in judgment of the monsters they ( the entire government) created.
I commend the outrage by citizens when massive waste and fraud takes place and I stand with to them. What I don’t understand is why citizens don’t put it all together and realize that this kind of waste and fraud is a daily occurrence in Washington. If the governments of this country lost a combined 165 million dollars a day, they would have lost just over 60 billion total for a year. I guarantee that our governments lose through waste, fraud, and abuse, far more than this yearly. When the feds spend 3.5 trillion over the next years budget, losing 60 billion will be nothing.
It is time that we directed our outrage at the real culprits of all this waste.
Really well said. The problem is that there seems to be no balance. One second, AIG is the devil himself, the next, we are suffering from what BBC America News referred to as “bailout fatigue” – that we’re all too tired of hearing about it to care anymore.
I think outrage is appropriate – and I think AIG is getting it because they’ve become the poster child for what’s gone wrong on Wall Street. But I agree with you that we should be most concerned about the bigger picture.