By way of background, we posted this on November 27:
How can you give cash compensation to an executive, yet claim it is not a salary or bonus? You call it a “retention bonus,” No, I am not making this up.
Note that AIG chose to make this disclosure the day before Thanksgiving, selecting a time when it would attract the least notice. Not that it really matters. The talk about restricting executive compensation to bailout recipients has been just that, talk.
It turns out that AIG was less than forthcoming in its pre-holiday revelation, and is now having to admit to more bonus payments during a busier news period. Did AIG really not have a good count two weeks ago, or did it think it could get cute and not admit to the full scope of executive largess? Or perhaps it decided, not having gotten as much flack as it feared, to expand the program.
From Bloomberg:
American International Group Inc., the insurer whose bonuses and perks are under fire from U.S. lawmakers, offered cash awards to another 38 executives in a retention program with payments of as much as $4 million.
The incentives range from $92,500 to $4 million for employees earning salaries between $160,000 and $1 million, Chief Executive Officer Edward Liddy said in a letter dated Dec. 5 to Representative Elijah Cummings. The New York-based insurer had previously disclosed that 130 managers would get the awards and that one executive would get $3 million.
“I remain concerned, as do many American taxpayers, that these retention payments are simply bonuses by another name,” Cummings said in letter responding to Liddy.
AIG, which received a U.S. rescue package of more than $152 billion, has been criticized for saying it will eliminate bonuses for senior executives while still planning to hand out “cash awards” that double or triple the salaries of some managers. The payments are designed to keep top employees at AIG while Liddy seeks to sell units and pay back the federal government, which owns 79.9 percent of AIG…..
Keeping the managers is necessary to maintain credit ratings and meet requirements in some reinsurance agreements, Liddy wrote. AIG disclosed the initial list of 130 managers in a September filing without saying how much most of the recipients will get. Another 38 people were added “subsequently,” according to Liddy’s letter, which didn’t disclose the new recipients or say when they had been added.
Yves here. What rubbish. Do you really think there are a lot of senior executive jobs on offer in the insurance industry these days? And have you ever heard of credit ratings being dependent on a particular manager staying in the saddle? CEOs get deposed without there being any ratings impact. This explanation comes perilously close to being a bald-faced lie. Back to the story:
The list was expanded so AIG can retain people with “key client relationships” and who have a high “degree of flight risk,” Liddy wrote.
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I think that’s what’s called chutzpah. Sit back and watch Congress…do nothing.
The US is shedding jobs faster than a snake sheds it’s skin yet these executive who oversaw a multi-billion dollar loss and subsequent bailout are worth paying retention bonuses too. Interesting concept; rewarding the incompetent and blessed by the government. Another knife into capitalism.
There’s an offence called Criminal Negligence. Can we please have one called Criminal Arrogance? Then we can lock these clowns up and throw away the keys!
When are the people of this country going to get angry about all this and do something? Ever?
OK I’m calling for it, time for a loan/lending/banking/Wall St Spanish Inquisition.
Now some may feel I’ve lost control of my emotions or mental state, but to the contrary my indignation is based on historical fact. Is this currant state of affairs not the same tyranny that our fore fathers fought with their lives against? How much more complaisant can the American people become in the face of which is transpiring.
I’m not talking about armed revolution but not unlike the people in Chicago, waiting for their legal rights to be fulfilled. Americans can non violently protest to the highest degree. Take away the social license of these people that care not for the common person or even them selfs.
If a person can go to jail for stealing a can of tuna to feed him self or his family, why not jail people that knowingly take from the mouths of many others, fully knowing that their actions may destroy or cripple others? In fact what kind of tepid mass have we become to allow these individuals to steal from our plates.
To those here that comment regularly, with a high degree of insight, based on experience and knowledge. What kind of society would you have? Opulence for a few or a broader base for all? We are a species eating our selfs out of house and home and for what? I waste by breath I think.
Skippy
“a high degree of flight risk” is a phrase normally used of criminal suspects, not of senior insurance executives. Just saying.
The whole idea of “retention bonuses” during a sharp recession, with unemployment skyrocketing, and the industry in question crumbling, is rank nonsense.
“How much more complaisant can the American people become in the face of which is transpiring.”
Here’s a note from one of the great unwashed– The problem is that we don’t have a clue about what’s really going on. The media are incompetent and the public school system has dumbed us down so efficiently that we are essentially UNAWARE of what is happening. I’m a “regular” person (public school grad, college educated, Master’s Degree in health care field) with no real financial knowledge. I have some math competency so I can balance my checkbook, but that’s about it. I wouldn’t have understood anything about the current state of affairs if I had relied on the main stream media or my (non existent) knowledge of money, finances and banking. I found this blog when the first bailout bill was proposed. I was searching for info because I was so outraged. Your blog entries and comments have given me lots of insight, but the fact of the matter is that I still don’t understand half of what you’re all blogging about. If I understand little of what’s happening, I understand even less of what I’m supposed to do about it.
Here I sit frustrated and impotent. I’ve done the calls, emails and letters to my congressman and senators, expressing my outrage. The problem is that I don’t have a clue as to what I’m supposed to be asking for.
A number of AIg property casualty executives, (a highly profitable division hat has nothing to do with all the “scandals” and losses) have been poached by competitors. In one case, a large insurer hired most of a department of a specialty group within an AIG PC division.
So the economy may be bad, but the sharks are out there trying to pry away people with specific skill sets and / or track records/
Just curious , does anyone know if these bonus dollars are being poured into AIGFP, which is the sub which sank AIG? It would be interesting to know. NY AG, if you’re reading this, please let us know!!
I think it is a good idea to pay these retention payments. Can you imagine what damage these fools can wreck somewhere else. It’s a good idea to keep the failures concentrated.
Tasha,
my experience is very much the same, I recently found several blogs while researching the “Financial crisis” that the MSM feeds. I work for the MSM (TV) and I can say that there is not much real journalistic work done on any Financial piece we see. When the message is more substantial than just a repetition of the day’s powers-that-be motto, it is because in the end, some interests somewhere are at stake. (not ours tho)
The blogs are changing all this, but it is going to take one full generation for it to come to fruition.
To many people are still spoon-fed what to think by the MSM.
Fortunately the Internet is a wealth of information. When I am frustrated because of my ignorance of the matters at hand, I use google and learn. It feels great.
As for the issue or executive compensation, since I am a blue collar from european descent, I have nothing but contempt for these actions in general. What is needed is what we call a “General Strike”, where everybody, private sector and bureaucrat alike, in all professions, just stop working at once. Very effective to scare the sh– of the electorate. Of course, here in the US, good luck trying to organize this. The MSM will call you a communist for it. There are even some laws left on the books I’m sure, that could be used to coerce anybody trying.
In any case, if your attempt to change the status quo were to become a succes, you would be met by violence from the state. I guess it will take more time time and pain before we get there.
Tasha, you have alot of company. Big problem IMO is most of the public is generally apathetic and prefers to watch dancing or singing shows as they loaf around on the couch. You’re right about the mainstream media in general and It’s too much work to do your own DD. Too skeptical, perhaps, but I doubt it.
Meanwhile Sen. Dodd is currently urging car execs out. He is a tool – really wholly owned subsidiary of banking industry. Saying Nothing abourt AIG execs and this fiasco.
@tasha,
Accountability in action is what is required. The system works for US not them. Who are they to think they have something over over us. We have to take it back now with a loud voice and get rid of the lobbyists that snuff out our cries. No more pandering, to are elected officials, by those that have money to sway the minds of our Government. Its our country not theirs and if we break it so be it, but we will learn and move foreword. Un-like them that wish to keep the status quo.
Skippy
The CEO and COO of the AIG Lexington insurance unit ( largest and most profitable Excess/Surplus insurer in the world) left today to “pursue other opportunities”
Why should a legitimate exec who performed well put up with the BS and Congress if a competitor will incent them to bail out? C
How come everyone always describes these types of shenanigans as “perliously close to crossing the line”, but no one ever comes out and says “they crossed the line”. Sheesh. What will it take for someone to say that?
“flight risk” must mean “turning State’s Evidence” — they must be in a panic that if they don’t keep bribing these people to be quiet they’ll start talking.
Betcha.
“flight risk” must mean “turning State’s Evidence” — they must be in a panic that if they don’t keep bribing these people to be quiet they’ll start talking.
Betcha.
I held up a NO BAILOUT sign over the highways and byways of Portland Oregon for 4 days prior to the initial bailout of AIG and was called a yahoo in the Oregonian.
This is what you get when the media is owned by the folks that got us to this point.
Calm the outrage. The AIG insurance business is not the part that was badly run or caused the problem. In fact, keeping the value of the insurance business intact is likely necessary to have enough value in assets to sell to pay back the taxpayer. The value of the insurance business is directly related to the customer base, which is dependent on the underwriters and staff of AIG. If AIG loses its underwriters and service staff, the insurance business has no value, and the taxpayer is out massive sums of money.
As far as unemployment, a 6.7% unemployment rate is hardly catastropic, and it varies by industry – so yes, talented people are in demand and AIG has some talented people who had nothing to do with the credit default swaps that got AIG into trouble.
So what do you want to do – get the emotional satisfaction of throwing (innocent) people into the stocks in the public square after branding them with the scarlet A, or think two steps ahead about the likely consequences? As a taxpayer, I’d prefer to keep as much value intact as possible and if that means paying the insurance folks retention bonuses to make up for the crap that comes from government management until the assets can be sold and the government paid back, so be it.
I don’t work for AIG, but I am in the insurance industry and I understand that without customer retention or on-going underwriting, the company is dead. I ask again, what do you want – emotional satisfaction, or financial satisfaction?
>>>NEEL KASHKARI IS NOTHING BUT A CHAI WALLAH<<<<
What the hell was that. If you have something to say against Neel, go ahead and put your points forward. If you just want to insult someone, I have a better place to show you. Go to yahoo message boards.
I don’t work for AIG, but I am in the insurance industry and …
Enough said.
these bonuses are not restricted to AIG. In my opinion much more aggregious are the retention bonuses handed out to Fannie and Freddie upper level management. This fall there were massive bonuses handed out to the management of Fannie and Freddie to ‘retain’ their services.
What did they think they were going to go get jobs at Lehman? The idea that the oh-so valuable and skilled managers of america’s over weight and collapsing financial behemoths are just going to hop out and get brand new jobs that pay even more at some competitor is… no longer true. They are begging for their lives. Actually as this unwind continues there is going to be a massive increase in 50 year olds who can’t find work. But, since this is a capitalist country it is important that we give the actual citizens one final injection of real money before their own corruption catches up to them. After all, we have so much to thank our great saviours for. Look upon their great works and marvel.
oh – forgot to mention – their shareholders, you know, the people whose money is invested in this facade of a company? They had nothing to do with the failure of the company either (as they are claiming these “managers” didn’t) – is anyone paying them a bonus for retaining their stock? IDIOTS!!!!! Why are taxpayers putting up with this!!!!
there is no employee ( and yes, these management idiots are employees) in any bureacracy who is worth over $250,000 per year. Period. CEO, CFO, doesn’t matter. In fact, I will suggest to you that the “in the trenches” manager is a much more valuable commodity – you know the ones who actually work? The stupid sh— who sell their souls for $60K (or less ) per year while the ruling class in the ivory tower makes millions?
These boards need to wake up and realize that they are paying a king’s ransom to these little snot nose Harvard/Wharton grads to produce crappy results, make bad decisions all the while living high on the hog. ???? Its time for the fascist corporate ruling class to disappear. Surplus funds should always be returned to the investors, not spent on carbon based wastes of skin like these CEO’s and their ill-informed mignions.
These Bonuses are entirely justified.Too many of you underestimate the difficulty in finding utterly corrupt Toadies that went to the right schools and have the right connections.
sorry if this posted twice- a lot of ranting going on. I am not sure I am ready for a proletariat uprising at the moment but at the very least there should be congressional hearings to determine the “players” who threw caution to the wind to generate more profits and to determine if there was criminal conduct. I am not sure what could happen to the principals if it is just gross negligence but even then some amount of public service should be required.
Yves, it’s possible that reinsurance agreement and credit support agreements have vague language requiring proper oversight of the business, and staff adequate to service the agreement adequately, but that would not require retention bonuses.
There are enough talented insurance executive looking for work now. Talent is available at a reasonable price.
The bonuses, if they carry strings of future employment (unlikely), would serve a purpose of retaining institutional memory — with complex agreements, that can be a plus. It takes a lot of work to understand a big block of reinsurance agreements that are new to an executive.
So, I’m of two minds here… AIG should disclose the details for public consumption.
AIG management is a pack of thieves and liars and they will continue to make unwarranted and totally unnecessary payouts to themselves as long as they are allowed to do so. There is no need for retention payments to anyone right now, much less this bunch of losers that ruined this company, because where are they going to go in this economy with a blotted resume? I say recall their bailout dough immediately and prosecute these villains as well! Let’s do likewise for any bailout recipients that continue to pay dividends. You cannot legitimately pay didvends without retained earnings…and if you have retained earnings you do not need a bailout. My two cents worth.
Agree with the many comments which make these packs of thieves and liars pay for what they did to this country and internationally.
Congress members went on vacation did they not? They all resemble Fr. & British of past than what the Founders established and the middle classes built.
We were not to be a country of princes and princesses living off the productive sectors.
smart independent
Just absolutely the bottom of the barrel. So many companies to get the federal handout had to do away with dividends and yet they pay 3m on 1m salary as a disguised bonus? Where the f**k would any of these executives go for another job? Let them eat cake …. De Tocqueville said a democracy could only last at maximum about 200 years then the citizens have to revolt, take up arms, kill off the government and “start over.” NO WONDER … maybe this is a truism. And these exact same folks were at the helm when it hit the wall …… This is the emerald city.
Great thread! I’ll only add one thing.
“The media are incompetent” is not really true. They have shown themselves to be extremely skilled at deflecting attention away from things like this. On-air personalities mention retention bonuses and move right along, with no discussion.
The people that run the media companies are not going to rat out their friends in the financial industry.
They protect their own. Unless unions are involved. That’s when the class aspect of this comes out into the sunlight. That’s why we see the auto industry bailout (a fraction of the AIG bailout) being so roundly criticized and nitpicked, while the financial industry is simply handed more cash to use as it sees fit.
Like for retention bonuses to keep the guys the ran the business into the dirt.
And have you ever heard of credit ratings being dependent on a particular manager staying in the saddle?
I dunno about credit ratings, but I’ve seen bond insurance covenants, in the muni market, that reference existing management.
My experience is with hospital revenue bonds, so it may be limited only to that market, but it does exist.
The insurance industry professionals’ posts in this comment section are symptomatic of a FIRE sector that has lost touch with the citizens, not consumers, who man the rest of the economy. It’s not good enough to urge calm and rationalize payments to executive of bankrupt companies that are ten or twenty times what most people make in a year. If one division’s activities bankrupt an entire company that entire company is bankrupt and you don’t get a bonus. People in the FIRE sector need to understand that their fellow citizens perceive what seems normal and acceptable in those industries as dishonest, corrupt, and harmful to the national community, and that perception has to be addressed.
Perception? You think they should do damage control and manage perception? Isn’t that what got them into this mess to begin with? Show it on paper whether it exists or not? Perception is not reality and the smoke and mirrors mentality of Wall Street has destroyed the economy. Its come to roost. Its time to get back to GAAP and accountability and… honesty.
I just received a ‘yes, but…but…’ email from AIG’s PR dept. after I posted a piece complaining about the ‘retention bonuses’. Which is pretty surreal.
Anyway, I referred them to you, Yves, for enlightenment.
http://davidgalbraith.org/business/aig-pleads-with-bloggers-to-let-them-have-their-bonuses/1377/
I am sad to read more about this after Yves original post.
Our lawmakers failing to play hardball with Liddy and Co and put these guys down to the mat is extremely disappointing.
Strict legislative and punitive discipline is required of our elected lawmakers who doled out $152 billion of our dough.
With our legislators sound asleep at the wheel, we are all gonna die!
This is it! I am writing to my Senator.
Fascinating blog. I am sure that this is not the last we will hear about bonuses to employees of previously performing divisions. Sooner or later, Citi will and has to get on to that act too.
I can picture the employees of the profitbale AIG insurance divisions wishing to “bail out”. Unfortunately, one too many of these bailouts will lead to an exodus and leave the least perfoming employees still on the payroll. AIG, for all sakes is nationaized.
I can all picture the same happening in Citi.
The problem is the same as too big to fail. If the profitable divisions were to be spun off, it would kill Citi and AIG. If they are not spun off, they become the bastion of the least competent. The million dollar question now is: are the least competent, competent enough to manage a division? This could very well be the classic research on the effect of compensation on performance.
“Another knife into capitalism.”
using taxpayer money to fund business isn’t capitalism as I understand the word.
We need to let these businesses fail. Supporting incompetent businesses won’t help anyone. The fact that if they fail, 1000 people will be out of work is bs because funding them just moves the problem rather than fixing it.
Worse, letting them fail doesn’t mean those people will be out of work. It means someone else will absorb the customers and the employees will find new jobs.
I agree with your points above and I abhor the use of taxpayer money for AIG. However, in regards to maintaining reinsurance, there is some truth to this, as some reinsurance contracts have “Key Man” clauses requiring and explicitly naming individual underwriters / managers to remain in place otherwise the reinsurance is terminated. However, most reinsurance underwriters (like myself) are reasonable if the Company comes to its reinsurer and explains that xyz may leave, etc however we have plans to appoint abc and obtain such agreement, usually not a problem if talent is on-par. The truth is there is not a lot of talent in the insurance / reinsurance space on large portfolio underwriting.
LOL, I can see them now dancing around going Weeeee, Free Money, Weeeee
jess
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Continue to write your congressman and woman. This will not stop. AIG is only the latest. Did we already forgot Merrill?
Contact information for all senator and congressman at http://www.returnthebonus.com