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| AIG boss defends $165m bonuses |
| 2009-03-19 |
| Edward Liddy, the head of American International Group (AIG), a US insurance giant, told the US Congress that the "cold realities of competition" forced the company to pay out $165m in bonuses that have enraged the US public. Liddy, under intense questioning from politicians in Washington, said on Wednesday: "Americans are asking quite simply, why pay these people anything at all?" about the bonuses handed to over 400 of its staff or former staff. "I'm trying desperately to prevent an uncontrolled collapse of that business. "This is the only way to improve AIG's ability to pay taxpayers back, quickly and completely, and the only way to avoid a systemic shock to the country that the US government [bailout], was meant to relieve." Despite definding his legal obligation to pay the bonuses, Liddy asked employees to "do the right thing" and return at least half of the "retention payments" that have outraged American taxpayers who spent billions bailing out the troubled insurance giant. Testifying under oath at the Congressional hearing, Liddy said he understood the rage over executive bonuses and said some AIG executives already have stepped forward to give money back. Paul Hodes, a US Congressman, said on Wednesday AIG now stood for "Arrogance, Incompetence and Greed." Gary Ackerman, a fellow Democrat, spoke of "a tidal wave of rage" sweeping the recession-hit United States. But Alex Brill, a former economic adviser to former president George Bush told Al Jazeera: "These contracts were put in place prior to the bailout, prior contracts between two entities. "Now the taxpayer has gotten involved, and Washington is involved, they don't like the agreements on the ground between AIG and its employees, and they're discovering it right now." |
| Posted by:Fred |
| #16 "How about being selective in your lynching?" What, and spoil all the fun? ;-p |
| Posted by: Barbara Skolaut 2009-03-19 16:00 |
| #15 I agree with you. It stinks to all hell, but it's a contract, it's legal and ought to be paid. My point is why is it that in the corporate world these people are almost always rewarded, and usually quite handsomely, for plowing their company into an iceberg instead of being handed a Dunkin Donuts cup and being told to hit the bricks? I gotta perform on my job. If I don't, bye bye. I just can't comprehend this shit. |
| Posted by: tu3031 2009-03-19 16:00 |
| #14 How about being selective in your lynching? Then it wouldn't be a lynching, lotp. |
| Posted by: g(r)omgoru 2009-03-19 15:51 |
| #13 You still haven't verified your blanket statement that they [all] pissed it away. Tar. Brush. Apply liberally. But - we enage in a pissing contest ourselves. Note the last few paragraphs of your article: The contract also appears as inviolable as it states. Of course, this is not to say that it cannot be broken some other way, such as through bankruptcy, taxation or perhaps legislation. And there are many contract doctrines that allow for abrogation of contracts that might apply here. ItÂ’s against public policy, it was based on a mistake, it becomes impracticable, and so on. But as Andrew Ross Sorkin has pointed out, we may not even want to do that as we need these people. Of course, this contract should have been better written to align pay with going-forward performance (in this case money saved in unwinding these trades). This leads to my final point: This was not a boilerplate contract. Rather, it was highly negotiated. And it was highly negotiated to pay retention fees at high levels without regard to performance. This is obviously shocking. But it makes me wonder: perhaps one area of direction here should be actually looking at who negotiated this and why? It strikes me that the A.I.G. financial products division received an unbelievably sweet deal. Did its managers slip it under the radar? Did the managers act in good faith? And who at A.I.G. signed off on this and did they focus on the risks and rewards? Yet more avenues for possible litigation. In essence: The contracts are legal. Abrogating them is possible. But it just might wreck a company where the US government holds 80% ownership. For once I agree with Besoeker. Move on from the bonus brouhaha to the more substantial issues. It does no good to put the red-cap on a pike and wave it around screaming "vive la revoution', except to slake some populist lizardoid fantasy. Send the Justice Department in to litigate how the bonuses were negotiated and awarded. Then investigate where the 170 billion went, fix it so it doesn't happen again, and figure out how to get AIG working so the 'taxpayer' has a hope of getting some of the money back. |
| Posted by: Pappy 2009-03-19 15:36 |
| #12 That's all well and good, but it doesn't address the question of how much of the bonuses went to employees of the financial services division and how much to those of the main part of the company that wasn't gaming the system internaionally. |
| Posted by: lotp 2009-03-19 15:32 |
| #11 Pappy. Ya wanna read it? http://www.scribd.com/doc/13395005/AIGs-Employee-Retention-Plan An analysis. Nice deal... First, the contract opens the kimono and details A.I.G.’s share of profits from the company’s financial products division. A.I.G. itself received 70 percent of the distributable income, with the employees of the financial products division taking home the remaining 30 percent. The definition of distributable income was not in the agreement itself, but it does appear to be profits. So, if I am right and if you think about the financial products division as a hedge fund (and it was), this is quite a fee they were taking home. Hedge fund managers typically only receive 20 percent of the profits and a 2 percent administrative fee. If the funds have losses, the managers receive nothing and they lose substantially because they have a significant amount of money invested directly in the funds itself. The managers are not then paid until they make back these losses. In A.I.G.’s case, however, employees got 30 percent with very little personal risk (we don’t know how much of their compensation was in stock) and their overhead covered. The arrangement shows the cavalier attitude of A.I.G. management and the power the financial products division had. Second, back to that risk part and the hedge fund analogy. The agreement confirms that A.I.G. indeed flipped this notion on its head. It also confirms what was publicly disclosed. These bonuses are payable regardless of performance and are calculated at 100 percent of 2007 compensation for all employees except senior management, who receive 75 percent of 2007 compensation. The amount is payable unless they are fired with good cause, resign without good reason or fail to meet performance standards. For those hoping that these employees could now be fired, “good cause” is defined in the agreement as a very high standard. This is normal for these agreements. The agreement states that “’cause’ means conduct involving intentional wrongdoing, fraud, dishonesty, gross negligence, material breach of the AIG Code of Conduct or other policies of AIG-FP or AIG, or conviction of or entry of a plea of guilty or no contest to a criminal offense.” Similarly, failure to meet performance standards is another hard test to meet. If you could meet this latter standard, the contract provides that the employee still keeps his or her 2008 payments, just not next years. So even if the employee fails to meet performance standards this past year, they still keep the money paid this past weekend. The contract also appears as inviolable as it states. Of course, this is not to say that it cannot be broken some other way, such as through bankruptcy, taxation or perhaps legislation. And there are many contract doctrines that allow for abrogation of contracts that might apply here. It’s against public policy, it was based on a mistake, it becomes impracticable, and so on. But as Andrew Ross Sorkin has pointed out, we may not even want to do that as we need these people. Of course, this contract should have been better written to align pay with going-forward performance (in this case money saved in unwinding these trades). This leads to my final point: This was not a boilerplate contract. Rather, it was highly negotiated. And it was highly negotiated to pay retention fees at high levels without regard to performance. This is obviously shocking. But it makes me wonder: perhaps one area of direction here should be actually looking at who negotiated this and why? It strikes me that the A.I.G. financial products division received an unbelievably sweet deal. Did its managers slip it under the radar? Did the managers act in good faith? And who at A.I.G. signed off on this and did they focus on the risks and rewards? Yet more avenues for possible litigation. But of course, this is all merely a diversion for what should be the main focus: Where did the $170 billion go that taxpayers spent on A.I.G and why, and what we are going to do with A.I.G. going forward. |
| Posted by: tu3031 2009-03-19 14:02 |
| #10 "These contracts were put in place prior to the bailout, prior contracts between two entities…” Bottom line, if these people legally and ethically fulfilled their contracts they deserve what is rightfully theirs to keep. If the government, at that time, felt the contracts represented egregious compensation they had a Constitutional obligation to renegotiate or withhold their “investment”. Legally, that must be done before rather then after the fact. There was that little thing called the Revolutionary War that was supposed to correct this type of tyranny. |
| Posted by: DepotGuy 2009-03-19 13:38 |
| #9 They lost 62 billion last quarter, Pappy. My hunch is one or two of them might've fucked up. But maybe that's just me... |
| Posted by: tu3031 2009-03-19 13:38 |
| #8 I have always thought it strange that companies would pay "retention payments" to individuals who played a large part in pissing said company down the drain. How do you know? You have access to the AIG contracts? |
| Posted by: Pappy 2009-03-19 13:12 |
| #7 Whoa Nelly! Who hired Ed Liddy as a "dollar a year man"? [Hank Paulson] Who was Chairman at Goldman Sachs when AIG sold them Credit Default Swaps as insurance against their very toxic CDO's? [Hank Paulson] Who was Chairman of AIG when they got most of their bailout investment from the Federal Government? [Ed Liddy] Who was Treasury Secretary that gave them the bailout investment? [Hank Paulson] Who then paid up Goldman Sachs $18 billion claim for the swaps against the hedged CDO's? [Ed Liddy] Getting the picture? Smelly fish in Denmark have nothing on the trail that keeps leading to Goldman Sachs, Merrill Lynch, Bear Stearns, Morgan, Citi and their man at Treasury Hank Paulson and their former man at New York Fed now Treasury - Tim Geithner. There is more to this story than we all know. |
| Posted by: Jack is Back! 2009-03-19 12:43 |
| #6 I have always thought it strange that companies would pay "retention payments" to individuals who played a large part in pissing said company down the drain. Hell, pay me. I could piss a company down the drain easy. And for a helluva lot cheaper then these "experts"... |
| Posted by: tu3031 2009-03-19 09:27 |
| #5 How many of those executives were part of the profitible portions of AIG? And how many were derivative speculators in London who gambled billions away? A lot of condemnation being passed out but precious little facts. Can we forces a nonUS citizen in another country to give up his contracted bonus? More facts, please. |
| Posted by: Richard of Oregon 2009-03-19 09:04 |
| #4 Ditto Glenn! Let them pay the bonuses and move on. This all to do about nothing. There are more pressing needs at the moment. |
| Posted by: Besoeker 2009-03-19 08:40 |
| #3 When the 'elite' screw up and make decisions out of malice or ignorance which drive their businesses to taxpayer rescue they are 'too valuable to lose' and warrant million dollar bonuses, while the contract clerks & custodians working for the same company, who did nothing wrong, don't even qualify for unemployment comp. (None-the-less, they have contracts, and it's cheaper to pay than break them, even if the contracts were quite ill-advised.) |
| Posted by: Glenmore 2009-03-19 08:34 |
| #2 How about being selective in your lynching? Liddy was brought in AFTER the fiasco to try to preserve a) the banking system from being pulled down by AIG and b) the taxpayer's value. Many of these bonuses went to people who weren't in the iffy side of the business - i.e. the people who ran their units well and who are the only spot of value in the company right now. Go ahead - abrogate their contracts and watch them walk out the door. Yeah, some scumbags got retention too. Maybe they should be lynched. Or maybe they're the only ones sufficiently familiar with what is going on in that side of things to aid Liddy in fixing what can be fixed. Short, short, short-sighted, those lynch mobs turn out to be. |
| Posted by: lotp 2009-03-19 07:40 |
| #1 cold realities of competition How about "hot realities of lynching"? |
| Posted by: g(r)omgoru 2009-03-19 03:48 |