A Token Reining in of AIG Bonuses (Banana Republic Watch)

The kabuki continues. The story from the Washington Post on AIG bonuses would appear to represent a modest win for taxpayers:

American International Group is doling out tens of million of dollars in bonuses this week to senior employees.

While AIG agreed to pay the bonuses months before the government’s rescue of the company began, the matter still is a source of anger for government officials. In a phone call on Wednesday, Treasury Secretary Timothy F. Geithner told AIG Chairman and chief executive Edward M. Liddy that the payments were unacceptable and needed to be renegotiated, according to an administration source….

AIG has agreed to restructure the $9.6 million in bonuses it would have paid to the firm’s top 50 officers. AIG’s top seven executives, including Liddy, have already agreed to forgo this payment altogether. The next 43 highest ranking officers would still receive half of their bonuses now. A quarter would be dispersed on July 15 and the rest on Sept. 15, but these last two payments would be contingent on whether the company makes progress on its restructuring plan.

Do the math. $9.6 million for 50 employees is roughly $190,000 each. And they are going to get half, it’s the second half, or roughly $95,000 per person, that is being delayed and made subject to performance.

So a possible savings of $4.8 million is made the subject of a two page article in the Washington Post. OK, in fairness, it does give a bit of history. But this represents .0028% (yes, that is correct) of the bailout money given to AIG.

This wrist slapping does nothing to address the issue of retention bonuses, and the $4.8 million is chump change compared to them. Let’s review the history. From the Financial Times, November 27:

One day after announcing strict limits on salaries and bonuses for its top tier of executives, AIG revealed that some of those executives will receive millions in “retention bonuses” next year…

The retention bonuses for 130 key executives were disclosed by AIG in September, after the US government rescued the firm from bankruptcy by purchasing 79.9 per cent of the company for $85bn. After the government takeover, Edward Liddy, the former Allstate chairman, was named chief executive and AIG offered retention bonuses to Mr Wintrob, head of AIG’s retirement services division, among others….

An AIG spokesman said on Wednesday that retention bonuses were different from the annual bonuses included in Tuesday’s statement.

Notice this disclosure was made the day before Thanksgiving, presumably so as to attract minimal notice.

Next retention bonus sighting, December 9, via 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.

Note that in many cases, the retention bonuses are likely to be larger than the portion of the annual performance bonuses withheld.

The pièce de résistance comes again via Bloomberg, December 13:

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….

“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….

Note that these actions all took place in the waning days of the Bush Administration, after Obama had been elected, In other words, it was just about certain no action would be taken to curtail these payments. And there were apparently some retention bonuses I missed; the WaPo article now says they cover 4,700 employees (oh, and they have been rebranded “retention pay”) for a total of $600 million. I’m cynical enough to wonder if 2700 were added to the pot and paid small amounts to greatly lower the average (which is now $127,000. Recall earlier that the range had been $92,000 to $4 million)

Some readers had pointed out that certain property & casualty businesses at AIG would feature a lot of customized deals, so losing key individuals there could be detrimental. But life insurance? When AIG pays better than most?

I am also no longer up to date on the state of the art in M&A land, but corporate divisions are (well were) put on the block all the time. I doubt there is much (any) precedent for such a high percentage of staff being offered such large inducements to stay, particularly in such a weak job market.

So the Geithner-Liddy spat is just a bit of theater, to make the great unwashed American public think that Team Obama is on top of all of its financial services industry invalids. But Liddy is playing it for all it is worth:

“I do not like these arrangements and find it distasteful and difficult to recommend to you that we must proceed with them,” Liddy wrote….

…the company said in documents provided to the Treasury, any steps that encourage specialists at AIG Financial Products to leave could open the U.S. government to further risk because of the hazards still posed by the $1.6 trillion portfolio of complex derivatives these employees are working to dispose….

Since that collapse, companies officials say, many Financial Products employees have lost nearly two-thirds of their compensation under the firm’s deferred payment plan, in which bonuses are doled out over several years based on the firm’s profitability.

The new cutbacks raise the risk that more employees will depart before the firm can be wound down and closed.

“These employees are highly specialized and/or are part of businesses that control billions of dollars of revenue and value that will be needed to repay the U.S. taxpayer,” Liddy wrote in a letter last month. “Our competitors understand how valuable our top executives are, and we are acutely aware that they would like to siphon off our most talented leaders.”

Liddy needs to consult DeGaulle, who remarked, “The graveyards are full of indispensable men.” And the folks at AIG should consider themselves lucky not to be in jail.

Since the WaPo excerpt did not make it explicit, the Financial Products group was the one that entered into the credit default swaps that brought the company to its knees. Given the fact that AIG keeps coming back for more money, I see no evidence that this group is doing a good, or even remotely competent, job.

Reader input on what has happened to comp levels in CDS land is encouraged.

Update 12:30 AM The New York Times adds some key details:

The American International Group, which has received more than $170 billion in taxpayer bailout money from the Treasury and Federal Reserve, plans to pay about $165 million in bonuses by Sunday to executives in the same business unit that brought the company to the brink of collapse last year.

Word of the bonuses last week stirred such deep consternation inside the Obama administration that Treasury Secretary Timothy F. Geithner told the firm they were unacceptable and demanded they be renegotiated, a senior administration official said. But the bonuses will go forward because lawyers said the firm was contractually obligated to pay them.

The payments to A.I.G.’s financial products unit are in addition to $121 million in previously scheduled bonuses for the company’s senior executives and 6,400 employees across the sprawling corporation. Mr. Geithner last week pressured A.I.G. to cut the $9.6 million going to the top 50 executives in half and tie the rest to performance.

This is the problem with not declaring bankrupt firms bankrupt. Then the bonuses COULD be clawed back, via fraudulent conveyance. Instead, we not only witness looting, but add insult to injury by having Liddy defending payment of bonuses out of a bust enterprise.

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  1. Anonymous

    The Obama PR machine has found its legs again

    meanwhile Roubini has just posted

    Reflections on the latest dead cat bounce or bear market sucker’s rally

    It is déjà vu all over again. We have already seen this Groundhog Day movie at least six times over and over again in the last year or so: the market starts to rally – this time around about 8% in a week – and the chorus of optimists starts to say that this is the bottom of the economic and financial crisis and that we are at the beginning of a sustained stock market rally that signals the true end of this bear market…

  2. Glen

    What’s happened to the American sense of justice; standing up and taking up the fight for what is right. People hang sh1t on the French for being reluctant to contribute on the world stage but you can sure as hell bet they’ll be up for a riot or two if their sense of justice is betrayed. Even here in Australia, a usually apathetic easy going nation, the people are angry; both the government and business know it. The summer of discontent is brewing.

  3. Anonymous

    Can't we just hang prosecution & prison sentences over their head, so that their motivation is to demonstrate their competence by cleaning up AIG, rather than self-preservation by way of $$$?

    Where is there incentive to reform & 'restore' the company?

    Don't mean that to sound like populous screed, but seriously.. can't we impress upon them the necessity to preserve wealth beyond their own?

  4. tom a taxpayer

    Enough is enough! Geithner must resign or be fired immediately! Taxpayers can no longer afford his incompetence.

    Geithner as President of the NY Federal Reserve is a principal architect of the AIG bailout, and established the terms and conditions of the AIG bailout along with co-conspirator former Treasury Secretary Hank “the mole” Paulson. Now Geithner as Treasury Secretary pretends he is surprised and must give in to bonus demands from the government’s own appointed AIG chairman, Edward M. Liddy. Outrageous! It was Geithner’s and Paulson’s job to put terms and conditions on the AIG bailout to insure these type of shenanigans and “surprises” don’t occur.

    And it is the government-appointed AIG chairman, Edward M. Liddy, who says he is forced to give $100 million in bonuses to “retain the best and the brightest talent to lead and staff the A.I.G. businesses”. The biggest talent at AIG and Wall Street is the talent for crimes that wreck the economy and soak the taxpayers. AIG chairman Edward M. Liddy also must resign or be fired immediately! Taxpayers can no longer afford his incompetence.

    Geithner, the man who did not pay $35,000 in self-employment taxes for several years, is now in charge of IRS.
    Geithner, the man who, as President of the NY Federal Reserve, conspired behind closed doors with the Wall Street mob and capo di tutti capi Hank Paulson on dirty deals for Bear Stearns/J.P.Morgan, Lehman, and AIG, is now in charge of U.S. banks and the U.S. Treasury where he can launder hundreds of billions of dollars more for crooked banks, for AIG the biggest bookie operation in U.S., and for AIG’s Wall Street bankrollers and gamblers.

    Can U.S. Secretary of the Treasury Geithner be expected to investigate and prosecute NY Federal Reserve Geithner for the dirty deals he made with AIG, Bear Stearns/J.P.Morgan, Lehman?
    Can U.S. Secretary of the Treasury Geithner, boss of IRS, be expected to investigate and prosecute Geithner for self-employment tax evasion?
    No more than Treasury Secretary Paulson could be expected to investigate and prosecute Goldman Sachs CEO Paulson.
    Timothy “the bag man” Geithner and Hank “the mole” Paulson have screaming conflicts of interest which should have disqualifed both from serving as U.S. Secretary of Treasury.

    If Geithner does not have the decency to resign, then Obama must fire him. Enough is enough.

  5. Anonymous

    This is sick. Why in the world are we helping these companies that keep sending millions to people who do not know how to run a company? Furthermore, I fear this is just the tip of the iceberg–there are so many ways these funds are hurting ‘average Joes’ but benefiting those in high places. Look what Enterprise rent-a-car did to get bailout funds:


  6. Anonymous

    I would like to go on record to say that for a mere $250,000 a year (sans bonus), I would be willing to help AIG unwind whatever it wants.

  7. Anonymous

    I’ve got no problems with this, as long as anyone who receives the money is summarily executed.

  8. MyLessThanPrimeBeef

    Why hasn’t the government labelled AIG a terrorist organization is beyond me, the way it holds the world hostage with its weapons of mass financial destruction, demanding ransom after ransom.

    I agree about people recusing themselves from conflict of interest situations. But we have a bigger issue here – upholding the Constitution and the principle of separation of church and state. It is my belief that if you are a messiah, you shouldn’t be in politics. If you have been called a sex god or sex goddess, plastic surgery or not, if you ever have had worshippers who worshipped you as a baseball god, a basketball god or a football god, steroids or no steroids you shouldn’t be in politics, directly or indirectly. Sorry, it’s in the Constitution.

  9. darkmatter

    we can suspend habeas corpus, we can hold people indefinitely without charging them, we can spy on americans without a warrant, but we cannot effing stop paying a bunch of robbers money.

    here it is. get whoever over at the marines, get some good special forces with big guns, ready a helicopter with flight plans for abu graib on the tarmac, then shove the contracts in front of the bastards and as the marines hover over them – just ask them if they would like to sign them that they are cancelled.

    this is criminal.

    this is criminal.

  10. killben

    “While AIG agreed to pay the bonuses months before the government’s rescue of the company began, the matter still is a source of anger for government officials. In a phone call on Wednesday, Treasury Secretary Timothy F. Geithner told AIG Chairman and chief executive Edward M. Liddy that the payments were unacceptable and needed to be renegotiated, according to an administration source….”

    It is shameful and highly distasteful for the regulators to act as mute spectators when tax-payers are being bilked in broad daylight.

    regulators simply want to show to the media that they have acted in the tax-payers interest. If that had been the case it will not be the case of shutting the door after the horse has bolted. It would have been clearly stated that no bonuses can be paid till the loan is repaid, at the time of doling out the money to these beggars. Again it is time for tax-payers to revolt … only this will drive some send into these blockheads that we do not believe in them and want action to be taken while doling out money and not after..

    Bonuses are supposed to be paid from earnings and not from dole-outs. Thus in future contracts written out with employees it should be clearly stated that the bonuses will apply if the company as a whole is profitable, it does not go begging for alms from tax-payers, company earns the money to pay the bonus etc..


  11. Hu Flung Pu

    I ain’t a lawyer. And I’m cognizant of the “slippery slope” argument against this suggestion (although the “slippery slope” is a logical fallacy, but no mind), but… can’t there be some “special directive” by the government that allows us – we, the taxpayers – to collect funds from folks like Joe Cassano who caused hundreds of billions in losses and walked away with hundreds of millions in pay? I realize that folks are hesitant to retract pay from folks on bets that turned out bad, but… this is just insane. Most of these folks would be lower-level management if “the times” hadn’t allowed them to take on excessive risk and bet the house over and over again. So it seems that taking back most of what they “earned” isn’t all that unfair. They didn’t really earn it in the first place. Am I crazy? (Well, on this topic, specifically.)

  12. Anonymous

    Please, seriously–screaming is not enough now.This can NOT be allowed to happen.Can someone please lead or step up and tell me (us) what we need to do to STOP this and bring awareness to public if that will help stop it.Im willing to write & call 24/7 & do just about anything but feel we need a leader.I'm just shy of advocating a junta and COMPLETE upheaval.It is BS to even THINK AIG has to pay these bonuses.Someone or someoneS have clearly lost all sense. This needs to stop

  13. Anonymous

    From what I gather, most of these payments within Financial Products were contractually promised long before AIG was anywhere near the brink. Absent bankruptcy, AIG really has no choice but to make these payments. Given that this business unit has shown the ability to lose hundreds of billions of dollars, would it be any surprise if they also entered into contracts with all sorts of employees that guaranteed them bonuses that were not necessary?

  14. Anonymous

    Well, the “too big to fail” strategy is obviously working. You better keep paying me pal, or me and my buddies will bring down the planet along with the company.

    have a cigar.

  15. Thomas

    Regarding retention bonuses to life insurance management:

    If they need to offer 6 months pay as a retention bonus now, wouldn’t they need to cough up again next year, and the year after, etc., as long as AIG’s long-term future hangs in the balance?

    If it is indeed true that AIG Asia is a “crown jewel” with a great future, wouldn’t employees be motivated to stay, because whoever ends up owning those companies will keep employing them?

    Sure, it’s true that competitors are trying to poach staff. But that happens all the time, and to every other company as well.

    To me, it sounds like management giving money to “its own” while it can. People further down the pecking order are included to make it look less like the top management money grab it is.

  16. Thingumbobesquire

    If we as a nation are so crazy as to forgo bonuses for AIG employees whoever can we possibly get with the requisite expertise to take their place now that Bernard Madoff is going to jail? Maybe he could get a work release. (Alas.)

  17. Anonymous

    Uhm HELLO… USA saved their asses from bancruptcy.. so no need to pay a cent… and let the rat bastards TRY and sue in a court of law… there are plenty of us who would LOVE to put faces to the crooks who have stolen us blind and ruined countless millions of lives

  18. geo1952

    Ano @ 6:51am
    Seriously, good idea. The shred of faith I have left in our country rests with “…plenty of us….” who could stand up in a court of law and give these mfers the bonus they deserve. I got their fair trial hangin.

  19. Scott Frew


    Edward Liddy, the former Allstate Chairman, who resigned from the board of Goldman Sachs to accept the appointment as CEO of AIG.

  20. Anonymous

    When Nick Leeson’s unchecked risk-taking bankrupted Barings bank, he was thrown in jail. Should he have been given millions in retention bonuses to help unwind his positions? If upper management is aware of excessive risk-taking, it does not make it legal, but makes them complicit in the crime.

  21. Kafka

    I can barely stand it, Romer on meet the press. I used to enjoy her analyses though rarely agreed with her conclusions, so what, what do I know? Romer told Gregory many lies based on powder puff questions (she can’t even maintain eye contact while lying like her boss, BO can). She even went so far as to say the government can’t stop AIG from paying 100s of millions in bonuses, what a f…king lie and how stupid is anyone who believes her, the Government owns 100% of bankrupt AIG, certainly it could stop the payments if it wanted to (not that it should, a different question). Thoreau said it best, no man (or woman in this case)can associate themself with the U.S. government without disgrace.

  22. Anonymous

    AIG sold contracts that were effectively insurance and which were not hedged, nor were reserves established, nor did AIG have sufficient capital to honor the contracts. Now if you one or two such contract you might get a pass by saying oops, didn’t realize we did have enough equity to support the sales, sell a trillion dollars worth and you’ve committed a fraud. Indict everyone in the division that sold the contracts, indict the entire senior management, indict the board of directors. No No, we are down the rabbit hole, pay them a bonus!! Whos was guy with a lantern that was looking for an honest man? We need a Don Q to skewer the kleptocrats!

  23. Anonymous

    In the words of one of the “best and brightest”:

    “Why make billions when you can make …. millions?”

  24. Francois

    Anon @ 6:15,

    Awesome idea to force these asshats to sue the go-vermin.
    Putting a face on this sorry bunch could be a sight to behold.

    Somehow, I won’t hold my breath while waiting to see it happen. That would assume this Administration can locate its spine and grow a set of kahunas. Too much to ask I guess.

  25. Eric L. Prentis

    “Screw the taxpayer and rationalize it with AIG legal gobbledygook.” Larry Summers, in defending AIG’s in-defendable employee bonus contracts on TV today, talks like a pig representing his little piglets. President Obama, letting your economic lieutenants support AIG bonuses is political suicide, do not trust anyone who advised you to pursue this strategy.

  26. Mannwich

    The deal should be work or pennies fixing this mess in “financial products” or go to prison. Then we’ll see how well they can retain these criminals on little to no pay.

  27. emca

    Sorry, here’s another angle: let the AIG have their bonuses, but investigate those same individuals via either criminal and civil suits for conduct we’re now suppose to be rewarded them for. Surely given what I’m reading in the above thread and other articles, transactions made to the temporary enrichment of AIG where not wholly above board. A investigation of what went on at that time would establish whether certain parties where knowledgeable of, or perpetrated inappropriate conduct within financial transactions under their management.

    Vindictive, maybe, but one notable authority stated, we are a country of laws. Let law be exercised, fully.

  28. Little Blue Monkeys

    Why has no eager prosecutor named these top bonus recipients as ‘material witnesses’? As such they can be forced to surrender their passports, the first step in starting to sweat them for more information. There is lots of latitude in what prosecutors can do short of filing charges, all in the name of discovery…what could be more reasonable.

  29. ruetheday


    “The Treasury Department determined that the government did not have the legal authority to block the current payments by the company.”

    The US Government now OWNS 79.9% of AIG. They don’t need “legal authority” because they own the goddamn company. Why can’t Geithner figure this out. If the government is unhappy with senior management, they can fire them. If the gov’t doesn’t like the bonuses, they can cancel them. Ownership means you get to make these decisions. It means you HAVE TO make these decisions.

  30. Anonymous


    The only value of the Sunday morning TV interviews is to point up exactly how all of these vermin – the interviewers included – are part of the same clique. As were the Bolshevik rulers of immediately post-1917 Russia, one sees despite the smoke screen of there being an apparent “opposition”, the evidences of the war they conduct virtually non-stop on those they allegedly serve. Anyone past age five that remains unconvinced needs to mull over the content of the Geithner “public-private” solution to the banking crisis and the sudden disappearance of Charles Freeman after his AIPAC mugging last week. We know, of course, because he’s told us that Geithner wouldn’t ever allow the thought of helping the banks to enter his mind. And Freeman, for his part, simply misunderstood how important Israel is to American interests in the Middle East. We have that on the indisputable word of Charles Schumer. One day, and let us hope that it is soon, filth like Geithner and Schumer will populate the defense cages at an enormous show trial. Yankee stadium won’t be big enough to contain the crowds.

  31. Anonymous

    Hi Yves,

    the quote you mentionned in your article is not from De Gaulle, but from Georges Clemenceau (yet another French president). It says

    “The graveyards are full of irreplaceable men, and they have all been replaced.”

    Which is very true.

  32. Anonymous

    emca said…

    “Sorry, here’s another angle: let the AIG have their bonuses, but investigate those same individuals via either criminal and civil suits for conduct we’re now suppose to be rewarded them for.”

    I think that this is a great idea, but what are the odds of it happening?

  33. Anonymous

    So Many American people loosing thier homes and jobs … these AIG Leaches raping the American taxpayers should be ashamed of their thoughtless acceptance of blood money!

  34. eh

    I’m beginning to wonder if these kinds of stories aren’t being deliberately promulgated as red meat for the masses — i.e. in tabloid-ish fashion to focus attention on apparently outrageous misuse of bailout funds rather than have it instead focused on whether the bailouts themselves are improper.

    AIG Discloses Who Received Payments From Federal Funding (i.e. Goldman Sachs had a good day

    After days or pressure from Congress and the public, AIG (AIG) released data about which counterparties to its credit default swap portfolio got large chunks of money from the federal government bailout of the big insurer…The largest sums went to Societe Generale, DeutscheBank (DB), Merrill Lynch, Goldman Sachs (GS), and Barclays (BCS).

  35. Anonymous

    AIG execs should be able to “unwind” the mess they created from the comfort of a jail cell.

  36. Anonymous

    Bonuses are paid as a reward for good performance. As such, AIG execs deserve every penny of their bonuses. After all, they saved AIG from collapse by having managed to get the American taxpayer to foot the bill.

  37. John Galt

    Everyone here bellyaching over the bonuses at AIG, get over it. These contracts were in place prior to any bailout and because of this have to be honored. You can’t change the rules while the game is being played and that’s just how it is. Now after the game is over you can talk about changing the rules but until then the contracts stand. For the government to interfere or impose new taxes would be one more step toward socialism. Last I checked I the United States is a Democratic Republic NOT a democracy nor is it a socialist country although those in power would like to see that change.

  38. Anonymous


    The bonuses were clearly based on fraud. AIG’s earnings were based on insurance written that the company could not pay for. The company effectively went bankrupt. if it had, they could easily be voided via fraudulent conveyance. So why should the company execs make out better because AIG was rescued?

    You avoid dealing with the facts and make a very simple minded assertion.

  39. geo1952

    I’m with you Anon 3:20p
    Mr Fountain Head, are you interviewing for a spot with CNBC or what? The corporation should be in Bankruptcy Court. It Failed. Agree? Why should their employee contracts be somehow sacrosanct when the company is beyond broke? Under what conditions were the contracts agreed in the first place? AIG’s business model has been broken but under the radar (except insiders) at the signing of the contracts.
    Under those circumstances the contracts were worthless anyway because AIG couldn’t afford to pay them.
    Screw the greedy bastards. That’s my money they’re giving away.
    Given the results of the current batch of John Galts wannabes running the financial industry I say let’em strike then we can replace them with some honest hard working folks. Nobody is irreplaceable. Especially fictional characters from a book.

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