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The AIG Bonuses
In response to the uproar over the millions of dollars in bonuses paid to the executives of AIG (you know, that company that would be bankrupt if not for the billions of dollars in loans it's taken from the US government), AIG management explains that it had no choice but to pay those bonuses because it was contractually obligated to do so. The Treasury Department, despite wagging its finger sternly at AIG, appears to accept that argument.

On salon.com Glenn Greenwald details why AIG's argument is transparently bogus. Contracts get renegotiated all the time when companies are in financial jeopardy. So what makes these contracts untouchable?

The truth must be that it's either a) a case of blatant cronyism, or b) the executives have some leverage that would make it more painful NOT to pay them than to pay them. (The latter argument is detailed here.)

What confuses me is the use of this word "bonus". Evidently these guys expect this money regardless of their own job performance or of how well the company does. In which case, shouldn't the payment be called "guaranteed compensation" or something similar? Calling it a bonus makes it seem analogous to the tip a waiter receives for good service.
Business/Finance
Posted by The Curator on Mon Mar 16, 2009


My favorite argument for giving financial executives huge bonuses (or whatever they are) is that it is necessary "to retain the top talent."

As has been noted by others, if these guys (and a few gals) get any better at what they do, we're all sunk for sure.
Posted by Big Gary  in  Sharpstown, Texas  on  Mon Mar 16, 2009  at  01:53 PM
I suppose that "bonus" falls under a certain taxation category that "guaranteed compensation" wouldn't.
Posted by Accipiter  on  Mon Mar 16, 2009  at  03:44 PM
As my wife pointed out to me, these guys have completely corrupted the meaning of the word "bonus." It implies something extra given because of good performance.

Uh, where is the "good performance" in the largest business collapse in history?

To use a grade school analogy, these guys want a Gold Star for getting an "F."
Posted by Cranky Media Guy  on  Mon Mar 16, 2009  at  08:43 PM
The problem is that in many forms of a business, a bonus is not really a bonus, it is an expected and mandatory part of one's compensation. If those bonuses had just been rolled into the regular salary, you would have heard nothing about it most likely, or less at least, but because for some reason part of their income is called a "bonus" and given separately, we think of it the way we perceive a bonus, like a Christmas bonus for many jobs, something extra given as a gift or thank you. But that's not what these bonuses are at all. It's a crazy use of the word which executives are now paying for.
Posted by catwhowalksbyhimself  on  Tue Mar 17, 2009  at  01:05 PM
Glen Greenwald is an idiot; contracts don't get renegotiated all the time and the certainly don't get changed unilaterally by a third party unless the company has declared bankruptcy. Moreover, it is very likely unconstitutional for Congress to force this issue (it would be a bill of attainder.)

I also fail to see why this is controversial, yet the IRS letting the idiots who invested with Madoff (and who likely suspected the man was ripping someone off, just not them) write off their losses.
Posted by Joe  on  Wed Mar 18, 2009  at  12:54 AM
"The problem is that in many forms of a business, a bonus is not really a bonus, it is an expected and mandatory part of one's compensation."

If that's the case, then my wife is correct that the word "bonus" no longer has any meaning.

"ecause for some reason part of their income is called a "bonus" and given separately, we think of it the way we perceive a bonus, like a Christmas bonus for many jobs, something extra given as a gift or thank you."

If it's just part of their normal compensation, why is it separate from their salary?

The CEO of AIG has said that the bonuses are necessarily because, without them, the company couldn't keep the "best and brightest." Putting aside the fact that if they really WERE the best and brightest, the company wouldn't be the largest corporate failure in history, his statement implies that the bonuses WERE bonuses, in the normal meaning of the word.

"Moreover, it is very likely unconstitutional for Congress to force this issue (it would be a bill of attainder.)"

Um, I don't think so. Since the Federal government now owns 85% of AIG, it is no longer a "third party," is it?
Posted by Cranky Media Guy  on  Wed Mar 18, 2009  at  04:09 AM
as stated before its all a taxation thing. Bonuses are treated differently then other forms of payment such as Salaries, tehy are taxable, but not at the same rate
Posted by Tim  on  Wed Mar 18, 2009  at  05:30 AM
Okay, after a bit of checking I found out just what these bonuses are about. The idea behind them isn't to reward the executives, but to keep them (and AIG is far from the only corporation to do this). Supposedly these executives are such top-quality that there's a danger of other corporations offering them huge amounts of money to lure them away. So these bonuses are supposed to be incentive for the executives to stay loyal to the company. Yeah.

Of course, now many people are suggesting that since these are the same executives who contributed to the mess that these corporations are in, wouldn't it be a better idea to let other corporations lure them away and thus to sneakily damage your competitors while cutting back on deadwood in your own corporation?

It also appears that these bonuses are all contractually demanded, and also are at a fixed rate. So it doesn't matter how productive the executive is or how bankrupt the company is, the bonus remains the same.

The rest of this is hearsay from a friend of mine who is running for Congress, rather than from my own research. So any information on how accurate or inaccurate it is would be good. Anyway:

According to him, the reason why these bonuses are pretty much engraved in stone by contract, are set at a fixed level rather than based on performance or company finances, and are free of taxation is because Congress made it so in the 1990's. It seems that there were three separate acts of legislation or somesuch that set those properties in place. Which basically means that Congress actually set in place the current situation at AIG with the bonuses, and are now acting all shocked and horrified that that's the way things are set up. I haven't been able to find out anything one way or another on that, though.
Posted by Accipiter  on  Thu Mar 19, 2009  at  07:17 AM
From http://downsizedc.org:

"Democratic Senator Chris Dodd of Connecticut inserted language into the scam-stimulus bill permitting the AIG bonuses that everyone is now bloviating about. He did so at the request of the Treasury Department. A Congressional majority then voted for the Dodd proposal, and President Obama signed it into law."

So...

" * Either those who voted for the scam-stimulus bill knew about the bonus provision, in which case they ought to be "falling on their own swords," instead of castigating the government-appointed CEO of AIG, or . . .
* They didn't know about the bonus provision, in which case they ought to introduce DownsizeDC.org's "Read the Bills Act," so they'll know what they're passing before they cast their votes. "
Posted by Anonymoose  in  Planet Earth  on  Wed Mar 25, 2009  at  02:11 PM
To understand the mentality of the executives feeling they deserve huge bonuses despite participating in the collapse of the financial system, you have to look at it from the point of view of being rewarded for serving the company.

From that point of view, here's what happened: The Company, AIG, was on the verge of collapse. Due to the actions of these executives, who helped negotiate a $200B government bailout, the company still stands. Therefore they should be rewarded for saving the company.

If they had gotten the $200B from anywhere except the taxpayers, they would be hailed as heroes. The only reason we care that bonuses that amount to less than 1/1000th of the bailout money received is that in general use, as mentioned above, a "bonus" is considered to be something paid for excellent work while in business it's an expected end-of-the-year payout.

It's not that the word "bonus" has lost it's meaning, it's just picked up another one, like the word "crash" as seen in the distinction between a computer crash and a car crash.
Posted by John Ordover  in  NYC  on  Thu Apr 02, 2009  at  05:11 PM
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