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AIG Still Planning Massive Bonuses Today

This article was written by in Career and Work. 16 comments.


Today is the deadline for American International Group (AIG) to pay $165 million in the form of bonuses to executives involved in businesses that led to collapse of the company — and the broader economy — last year. The company argues that these bonus payments were agreed to before the company required support from the government and taxpayers to stay in existence, and the government agrees. While some of the bonuses paid by AIG to its employees were reduced, these will go forward.

According to an anonymous government official quoted in the New York Times, the White House is outraged at the continuation of bonuses at taxpayer expense, yet they cannot do anything about it.

Is this too much attention on the one company? Should AIG be permitted to honor contracts drawn up under significantly different financial conditions? These bonuses supposedly help the company retain the best employees; if the employees in these divisions that led to the company’s collapse were the best employees, wouldn’t they have been able to avoid that collapse?

Published or updated March 15, 2009. If you enjoyed this article, subscribe to the RSS feed or receive daily emails. Follow @ConsumerismComm on Twitter and visit our Facebook page for more updates.

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About the author

Luke Landes, also known as Flexo, is the founder of Consumerism Commentary. He has been blogging and writing for the internet since 1995 and has been building online communities since 1991. Find out more about him and follow Luke Landes on Twitter. View all articles by .

{ 16 comments… read them below or add one }

avatar Bill McCollam

The bonuses are just wrong. Dead wrong. AIG has made many obligations that (to customers, bondholders, shareholders) that they are now unable to honour. Why should executives be different? All of these bonuses should have been subject to an overriding Board approval before payment. And the Board should use that override to cancel them.

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avatar zach

just because they’re allowed to give bonuses doesn’t mean that the individuals receiving the bonuses have to accept them. i’m surprised the employees of the company haven’t banded together and insist that the bonuses be rescinded. the government has such a large stake in AIG now that getting on their bad side by doing something so incredibly polarizing in the public arena won’t do these people any favors in the long run. in fact, if obama’s administration is all about integrity, i’d go so far as to say you’d be doing yourself a favor if you worked at AIG and turned your bonus down. not only is it the right thing to do, but it sets you apart from all of the others who are taking bonuses (which, last i checked, were earned based on performance [and considering you needed to be bailed out by the government, i'd say you weren't performing that well]) and makes you an attractive job prospect for a government job or even a job at another firm down the line.

i feel bad for the little people at AIG who had nothing to do with this mess, but we’re all making sacrifices, taking pay cuts, losing our benefits, putting our plans on hold because of the economy. i don’t see why these AIG employees should be exempt from that.

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avatar the weakonomist

AIG should do the smart thing here and just hold off on the bonuses thing. You can let them accrue or pay them in company stock. This is simply bad PR at this point.

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avatar JC

“If the employees in these divisions that led to the company’s collapse were the best employees, wouldn’t they have been able to avoid that collapse?”

I’m not sure if that’s a fair argument. How many people actually predicted the situation that we’re in right now? I think it’s easy for people to start the blame game. It’s easy to put people at fault, but can you do better than they did? It’s like people blaming Obama for the failed economy right now. It’s a bunch of noise and chatter that doesn’t really go anywhere, imho.

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avatar RAJEEV TIPS

How on earth AIG can pay their executives such large bonuses.. these employees were the ones responsible for the mess created.. I think this is the result of callous attitude of top management of these bailed out companies.. they got money too early n too cheap.. they should know that they cant squander it.. They should follow in the footsteps of Vikram pandit.. the CITI CEO.. he has decided to forego his total pay .. thast some kind of leadership.. any one out there to emulate him?

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avatar Greg

What am I missing here? Are these bonuses, or is this pay? I’m sure most of those getting bonuses are getting regular paychecks that would make any sane person gag.

The term ‘bonus’ implies great performance….”?” This is where shareholder equity has gone in the past few years, into the pockets of incompetent management.

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avatar cherryblossom

That’s just shenanigans.

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avatar aa

They’re trying to scare the government. The contract might require a bonus payout but it wouldn’t include the actual amount in advanced. Technically, AIG can pay $1 bonus to avoid the lawsuit.

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avatar SingleGuyMoney

Must be nice to have a job where you can run your company in the ground and still get a huge bonus to do it. I don’t have a problem with companies giving out bonuses. My problem is that the bonuses should be based on performance and the overall health of the company.

If the company is not doing well, there should be NO bonuses!

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avatar Bobby

While I don’t think the bonuses are the smartest thing in the world, I would think AIG would be able to argue for their elimination if it really wanted to. I would think these bonuses would fall into three categories:

1. Newer employees who joined AIG recently (6-12 months prior to meltdown)
2. Tenured employees who ran departments that did not contribute to AIGs collapse
3. Tenured employees who ran departments that did contribute to AIGs collapse

Someone new (group 1) wouldn’t necessarily be able to “right the Titanic” as it were. I wouldn’t necessarily have a problem with people in groups 1 and 2 receiving promised bonuses. Group 3 should NOT get a bonus and if they wanted to leave the company, good riddance.

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avatar El Cheapo

I think I agree with everyone above as far as giving bonuses to executives of a companies that just took billions is completely ridiculous. My personal feeling is that now that the US Government owns 80% of the company, why can’t it change these “contracts” and/or fire these executives. If I was on the board, I would like to challenge what these executives have done to warrant million dollar bonuses. In fact, give them two simple options, (1) keep your job and get no bonus or (2) keep you bonus and go find another job. Just my 2 cents.

Check out more on this on my site (that’s how I found this site, was doing research). http://mymeans.net

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avatar Weev

Whoever signed the contract guaranteeing bonuses for employees regardless of their performance should be fired! Paying bonuses with government bailout money is just wrong.

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avatar Chris

While I have been appalled that investment bankers and traders have been provided retention bonuses, I will say that most likely, the AIG retention bonuses were justified in this case. Hear me out before you slam me. Unlike the investment industry, the insurance industry, particularly the property and casualty industry still has quite low unemployment. Currently they are at 3.5% versus a run rate of 3%. Why is that?

Unlike investments, property and casualty insurance is fairly resistant to downturns in the economy as contractually, companies are required to carry insurance. Workers compensation is statutorily required by each state. Most contracts between business require at the minimum, general (Public) liability insurance and no company would think about canceling their Directors and Officers Insurance. So even if companies wanted to cut back, they are required to evidence the insurance.

Add to that, that outside of AIG and XL, the rest of the insurance industry is healthy, such as ACE, Chubb and Zurich. In addition, Lloyds of London has been making a big push into the USA, and given that they went through bankruptcy several years ago, have not been affected by the subprime crisis given the limitations on their investment and underwriting criteria.

What other people don’t realize about AIG, is it is one tiny London based division that took the entire company down. AIG’s biggest subsidiary, National Union, has 12 Billion in Surplus earnings. That is in the range of double their next biggest competitor. It is still very healthy. The great thing about state regulation of those entities, they are not allowed to dividend most of those earning back to the p arent, so are fairly protected against the parent dipping in.

So to protect the healthy portion of the company, i.e National Union, American Home, Lexington, retention bonuses are most like justified in those companies. Good underwriters, claims people and rainmakers are hard to come by.

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avatar Roger

Wow, there are so many things wrong with this scene. First, here we have a company that, if it weren’t a globe bestriding giant of a bank, would be in the trash heap of bankruptcy by now. This company decides to give out bonuses to its employees, in spite of being nationalized in all but name. Our government gave this company billions of dollars, without any conditions or real restrictions, and now acts shocked that they are trying to carry out business as normal.

I don’t necessarily begrudge the employees who take the bonuses (at least, any who didn’t materially contribute to AIG’s current problems), but this just makes AIG look even worse in the public’s eyes.

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avatar May

So why do we also complain when bonuses are awarded to Lee Raymond?

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avatar AJ

People are losing their jobs without being offered remuneration packages and this company which played a major role in the financial situation that is now rocking the economy worldwide is giving out bonuses!!!! They need to be jailed!!!!!!

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