AIG's Dysfunctional Managers and their Bonuses
Since Ponzi schemer Bernie Madoff has gone to jail, the Howard Beal "I'm as mad as hell, and I'm not going to take this anymore" anger towards Wall Street has found a new whipping boy.
It is insurance giant AIG, the proud recipient of $173 billion and counting in United States government aid.
AIG, now 80% owned by the taxpayers, has committed the corporate version of pedophilia sans the usual shame and remorse. The company, almost certainly in need of more cash infusions than the $173 billion already given it by the taxpayers, somehow found enough extra money (from where I do not know) to pay $165 million in bonuses to employees last Friday.
Bonus comes from the Latin word for good, so one would assume that AIG gave the bonuses to their high performing employees. In fact, the opposite was true. The employees given the bonuses -- the traders of the credit default swaps -- were the very same ones that brought AIG and, in fact, the entire global financial system to its knees. A financial crisis seems an odd time to try a new management philosophy: reward for failure.
The current CEO of AIG recruited for the job by the Bush administration, Edward Liddy, has somehow found a way to defend these bonuses. If anything, this is proof that he should be fired. In a letter to Treasury Secretary Timothy Geithner, Liddy wrote, "We cannot attract and retain the best and brightest talent to lead and staff the AIG businesses -- which are now being operated principally on behalf of the American taxpayers -- if employees believe that their compensation is subject to continued and arbitrary adjustment by the U.S. Treasury."
The $165 million is only the first installment in a total bonus pool of $450 million. Seventy-three employees received more than $1 million dollars. Eleven employees granted bonuses, including one that received a $4.6 million bonus, are no longer with the firm. This obviates the argument that these bonuses are necessary for retention.
President Obama justifiably said that he "could not understand how anyone at AIG warranted a bonus." He had asked Secretary Geithner to use every legal avenue to recover the money. (No chance of that happening.) Administration officials have known about these bonuses for months. I am wondering why they chose to react now instead of two weeks ago, when they gave AIG $30 billion more.
There was absolutely no need to pay retention bonuses to a group of employees that created $180 billion in losses. Where are they going to go? Liddy, AIG's CEO, sounds like a battered wife making excuses for standing in the way of her bullying spouse's fist.