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.