Note: There is an interesting conversation going on over at MOChassid's about the AIG bonuses. I don't agree with what they're saying, but still, it's a fascinating debate.
It appears that the public outrage over the AIG bonuses (see post below) has shamed the company into calling upon its executives to return the bonuses that they have received. CEO Edward Liddy said that he had “asked those who have received retention payments in excess of $100,000 or more to return at least half of those payments.” Some have “already stepped forward and returned 100 percent,” he added. (MSNBC article)
This of course, begs the question: Why only those payments that are over $100,000? A bankrupt company that is surviving on government money has no business giving out bonuses of any kind. While this arrangement still leaves a lot to be desired, I am glad to see that the public backlash against these huge conglomerates is starting to have an effect on the way that these companies are run. Hopefully this whole mess will usher in an era of corporate fiscal responsibility and responsiveness to shareholder and public concerns. Maybe public corporations will no longer be run like exclusive clubs that exist solely to benefit the executives who run it. Maybe stricter government regulation and public scrutiny will lead to more honest, transparent corporate accounting.
Sigh. And maybe my grandma will sprout wings and learn to fly.
Update: The House of Representatives passed a bill today that would impose a 90% tax on bonuses received by employees of AIG and other companies that have been given at least $5 billion in federal bailout money. "We want our money back now for the taxpayers," House Speaker Nancy Pelosi said. (AOL article)
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10 comments:
When Isaac worked at Bear Stearn he got annual bonuses of less than 100,000 dollars, but significant enough to make a huge difference in our ability to pay the bills (i.e. yeshiva tuition). His bonuses, which were taxed at a 50% rate, so he came home with half of that money, were part of his "total compensation package". In other words he was given a salary but told that that salary took into account that he would be receiving the bonus. Of course, the bonus was not guaranteed and there were years (2001 comes to mind) that bonuses were significantly reduced.
I guess that what I'm saying is that the people who are receiving bonuses of less than $100,000 are not the high rollers of the firm. If they are anything like we were, they were depending on the bonus to help them make ends meet (i.e. yeshiva tuition).
Now I understand the situation right now calls for drastic measures and I'd rather not have a bonus and still have a job, but the big chunk of money is coming from way up higher than those with bonuses of under 100,000.
When a company is getting bailout money from government funds, there should be some sort of financail guidelines and oversight.
Baila-
That's a fair point. The people who receive the smaller bonuses are not "high rollers", as you said. And they are also not the ones who determine fiscal policy for the company, so it's not their fault that the company is going under. But I still think that it would be more honest to eliminate bonuses entirely and just pay employees a pre-determined annual salary, as other industries do.
BTW, Isaac worked for Bear Stern? Looks like you moved to Israel just in time!
Rivka-
Absolutely. And that's why the Obama administration is getting criticized so strongly for rushing the bailout through without setting adequate guidelines.
Totally agree about the pre-determined salary. Every year we sweated out bonus-time, knowing that that money was going toward tuition. And if a company IS going to give high bonuses to the bigwigs, there should definitely be clauses that say that if the company is not doing well, or say, the economy is collapsing, you just don't get the bonus and have to survive on your 200,000 dollar a year salary alone.
I agree with Rivka. Things are different when the banks are helped by tax payers money, like this year. There have been similar scandals in France; the most recent is one where 4 top managers received a huge sum in stock options while ordinnarey employees are asked to be careful in their use of pencils and erasers.
You are all missing a very important point: the contracts these executives signed with AIG and other such companies were in place long before the financial scandal began. The bonuses were contingent on personal performance, not overall company performance.
What Obama is doing is playing the populist card. What working stiff isn't excited to see that multi-gajillionaire get smacked across the face, financially speaking? But what he's doing is passing laws that penalize specific groups of people because, well because he doesn't like what they've done, dagnabit.
That's not the way to run a country. If he was against bonuses, he should have written it into the terms of accepting bailout money. He didn't and now he's using populism to cover his error.
ilana davita-
I hadn't heard about the scandals in France (American press coverage is not as international as it should be). I hope the pencil-haters were fired.
Garnel-
I am not missing that point. I noted in my previous post that "AIG is contractually obligated to pay out these bonuses regardless of the financial standing of the company. Failing to do so could subject them to lawsuits, which is the last thing they need right now."
However, as Ilana Davita said, "Things are different when the banks are helped by tax payers money". I agree with you that Obama should have made receipt of federal bailout money contingent upon the canceling of bonuses, among other conditions. In his rush to push the program through, he didn't, and that was a big mistake.
Truthfully, it doesn't really matter whether the AIG executives get to keep their bonuses or not. $165 million is a drop in the bucket when you're talking about a $170 billion bailout. AIG is being used as a scapegoat and as an example, but that's fine with me. Something has to change in the way that these bloated companies handle their money, and if this incident serves as a catalyst for positive change, then it is worth it.
No question - the big bonus babies at companies like AIG need to be smacked upside the head.
All the same, listening to a Congressporker like Nancy Pelosi waxing indignant, and talking about "getting money back to the taxpayer," simply sets my teeth on edge.
There are no good guys in this story.
Raizy, you're doing just what I warned about. It's okay to make AIG a scapegoat?
Why about the law? It's against the law to make retroactive tax laws like Congress did to punish AIG. If Obama and the Democratic Congress don't care about legal niceties in the pursuit of "what's right" then every common citizen of your great republic is in danger of seeing their civil rights go down the drain.
Interesting, isn't it, that when Bush II attacked civil rights after 9/11 everyone condemned him. Now they're cheering.
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