Over a weekend, word leaked out that AIG is paying yet more retention bonuses. This move is making a complete and utter sham of the supposed punitive elements of the rescue. But clearly, there was not enough of an adverse reaction to the earlier announcements of retention bonuses to deter the giant insurer. A few Congressmen saying bad things hasn’t put a dent exhorbitant CEO pay, so why should it be more effective here?
Some readers have written in to say they have friends or family at AIG who had worked very hard for many years and continued to work hard, and deserved better.
I hate to say it, but the party line on capitalism is that the participants are supposed to bear both risk and reward. Top people at AIG were very well paid just on a cash basis. Yes, it is sad if savings in the form of stock holdings are wiped out, but the government is not supposed to be in the business of saving private enterprise from its bad decisions. There were hardworkng people at Enron and Bear who were not at all culpable in the demise of those firms, but they had their savings wiped out.
I have a hard time understanding why anyone at AIG is deserving of any more than what a top government official would earn. The ONLY argument I have heard is from David Merkel, that for certain types of business, it would be hard for a newcomer to get up to speed on the existing book of business.
But are there as many people like that as are getting retention bonuses? And more to the point, those people are as often likely to be rank and file, are they not? Sorry, but this pattern looks like abuse to me, pure and simple.
And perhaps most important, AIG planned to keep these bonuses secret. That alone strongly suggests they do not pass the smell test. They are living on government life support and have the nerve to lie by omission about what they are doing with senior level compensation.
From Bloomberg (hat tip reader Glen):
American International Group Inc., the insurer under fire for paying 168 executives not to quit after a government takeover, is giving retention awards to at least 2,000 more employees, according to a person familiar with the matter.
The “retention bonus” equals as much as a year’s salary and recipients were ordered to keep the payment secret, said the person, who declined to be named because the plan was labeled confidential. Awards were offered to as much as 10 percent of staff at businesses that are for sale, including plane-leasing and insurance units in the U.S. and overseas, the person said.
AIG said in September that 130 executives will get awards, just days after the New York-based firm got a government rescue package that now totals $152.5 billion. AIG Chief Executive Officer Edward Liddy told Congress last week the payments will go to 168 people, with some getting as much as $4 million.
“If it has the money to give these disguised bonuses to thousands of its employees, then I think it is time for Mr. Liddy to write a check to the federal government repaying the money it took,” said Representative Elijah Cummings, a Maryland Democrat, in a statement yesterday.
Nicholas Ashooh, an AIG spokesman, said life insurance unit chiefs were allowed to give retention awards to as much as 10 percent of their staffs, and selected “closer to 7 or 8 percent” of workers. There are about 37,000 employees in AIG life units around the world, Ashooh said. A typical payment is equal to about six months of salary, he said….
Yves here. There is nothing so arcane about life insurance (in contrast, say, to reinsurance) that the employees would be in possession of such special knowledge or skills as to make them irreplaceable. Back to the story:
Units that AIG is trying to sell employ about 70,000 people, which means that as many as 7,000 could receive payments, the person said.
Cummings said he felt deceived by the company. “Liddy told me in writing that his company was awarding 168 retention payments,” he said. “There is no way around that figure. I cannot imagine Mr. Liddy accidentally overlooking a few thousand employees targeted to receive these funds.”….
The insurer requires recipients to keep the payments confidential, according to a contract obtained by Bloomberg News. Exceptions included financial and legal advisers, as well as immediate family. If awardees tell other outsiders about the existence of the program, they will forfeit future payments, the contract says….
Assistant Treasury Secretary Neel Kashkari, who supervises the U.S. financial rescue program, has called some of AIG’s bonuses “excessive for a failing institution.”
Yves here. When the Bush Adminstration, dispenser of financial institution handouts, voices disapproval, you know things are out of hand. Back to the story:
In one instance, an AIG manager of an overseas unit told his superior that the payments weren’t needed because employees were unlikely to leave, the person said. The manager was overruled, said the person…
The 168 managers in the first round get awards of 100 percent to 300 percent of their annual salaries, the person said. Those payments were approved by an AIG compensation committee two days after the company’s Sept. 16 bailout, the insurer has said. That rescue included an $85 billion loan that saved AIG from bankruptcy, shortly after the government allowed investment bank Lehman Brothers Holdings Inc. to fail.
The insurer’s rescue package was expanded last month after continuing losses from credit-default swaps…
AIG, under pressure from lawmakers to limit executive compensation, said on Nov. 25 that Liddy, 62, will receive $1 in salary through 2009. The company said it will freeze salaries and forgo 2008 bonuses for seven top leaders.