Senate Republicans Change Stance on Employee Pay

AIG CEO Edward Liddy (WDCpix) and UAW President Ron Gettelfinger (uaw.org)

When the Senate last December killed legislation to bail out Detroit’s automakers, there was no mystery behind the impasse. Senate Republicans had demanded that the United Automobile Workers renegotiate their contracts to cut workers’ pay and benefits, and when Democrats and the UAW balked, the deal was dead.

What a difference 100 days can make.

Illustration by: Matt Mahurin

In the midst of the public outcry over $165 million in contractual bonuses paid last week by bailed-out American International Group, many of those same Republicans are treading much more reluctantly around the government’s powers to demand contract changes to limit employee pay, even for firms receiving billions in federal funding. In angry statements, some of those lawmakers are asking about the legality of the payments, while others are questioning whether Washington has the authority to interfere with the contracts at all. But they aren’t calling for the forced renegotiations that they demanded of the autoworkers — a contrast leading many observers to claim a double standard being applied to different bailout recipients.

“Clearly there are two sets of rules — one for the rich and one for the rest of us,” said Mark Brenner, director of Labor Notes, a Detroit-based labor-advocacy group. “It’s a double standard about class, and it’s why people’s blood is boiling.”

Peter Morici, economist at the University of Maryland, echoed that message, calling on Treasury officials to explain “why a UAW worker earning $29 dollars an hour must give back wages and benefits to keep their company alive, while the architects of the biggest financial disaster in history get to keep their gold-plated contracts?”

After the Detroit rescue bill failed the Senate in December, the Bush administration swooped in with $17.4 billion from the Wall Street bailout to prevent Chrysler and General Motors from going bankrupt. As part of the deal, the UAW agreed to rework its contracts with each company — negotiations that are still ongoing. The automakers have asked for almost $22 billion more, with a special White House task force to decide by next week whether to grant the requests.

Meanwhile, as the furor over AIG bonuses has consumed Washington, the flailing insurance giant has defended itself with a persistent and singular argument: The controversial payments, though perhaps “distasteful,” are legal contracts that must be paid.

“Quite frankly, our hands are tied,” AIG CEO Edward Liddy wrote to Treasury Secretary Tim Geithner this month.

President Obama’s economic team evidently agrees. “We are a country of law,” Larry Summers, director of the administration’s National Economic Council, said on ABC’s This Week earlier in the month. “There are contracts. The government cannot just abrogate contracts.”

Appearing Tuesday before the House Financial Services Committee, Federal Reserve Chairman Ben Bernanke told lawmakers that he tried to stop the bonuses to employees in AIG’s Financial Products division (AIG-FP), but he “was informed that they were mandated by contracts agreed to before the government’s intervention.”

Many legal experts agree that recovering the bonuses under the existing contracts would be tough without a slew of lawsuits. Yet as the debate rumbles on, a growing chorus of lawmakers, economists and labor experts are beginning to wonder why there hasn’t been a stronger push forcing AIG to renegotiate those agreements as a condition of receiving tens of billions of dollars in bailout money — the same sacrifice demanded of autoworkers in return for the much lesser bailout funding delivered to Detroit in recent months. Critics of the disparate approaches are accusing Washington policymakers of holding different bailout recipients to different standards.

“Working people are used to having their contracts renegotiated whenever the company’s in trouble,” said Thomas Geoghegan, a Chicago labor lawyer. “Here AIG just got [the help] handed to them on a silver platter.”

Geoghegan, a one-time contestant to fill the House seat vacated by Obama Chief of Staff Rahm Emanuel, said that AIG was “treated vastly more leniently” than the automakers. “The government certainly had the power to negotiate,” he said, “[but] the financial sector gets special treatment.”

Gary N. Chaison, a labor professor at Clark University in Worcester, Mass., agreed, arguing that policymakers simply didn’t push AIG the way they did the automakers. “If they wanted to renegotiate the [AIG] contracts, they could have,” Chaison said. “I just think that they didn’t try — they didn’t want the trouble.”

Some lawmakers have registered their frustrations as well. Speaking on the Senate floor last week, Michigan Sen. Carl Levin (D) accused the Treasury of an “appalling double standard.”

“To recover from AIG’s financial fiasco and repay the government loans, it should have been clear that everyone at AIG would have to make sacrifices to sustain the company and rebuild the U.S. economy,” Levin said. “Unlike the autoworkers, however, AIG’s executives didn’t step up to the plate.”

Even Liddy has indicated that the contracts can be broken. “The architects and builders of the AIG-FP strategy, they are gone — primarily, Mr. [Joseph] Cassano and a few other names,” he told House lawmakers last week, referring to the former head of the company’s financial products division. “And we are not paying them anything. Despite what the contracts say, and everything else, we are not paying them.”

Neither AIG nor the Treasury Department responded to requests for comment.

The current debate is a far cry from December’s discussion over the auto bailout, when Senate Republicans demanded that $14 billion in emergency loans hinge on the UAW conceding, by the end of 2009, to slash workers’ pay and benefits to match those of the foreign transplant companies. The UAW insisted that the cuts wait until 2011, when the union’s contracts expire. The issue was a deal-breaker. The bill died in the Senate , eight votes shy of the 60 needed to end a GOP filibuster.

At the time, the issue of existing contracts was of little concern to the Senate’s GOP negotiators. Sen. Bob Corker (Tenn.) said he was “absolutely stunned that the UAW leadership would not agree just to be competitive.” Yet more recently, when asked about the AIG bonuses, Corker took a different stand. “[K]nowing whether these were contractually obligated to or not, is important,” Corker told Fox News Sunday earlier this month. “So I think I will withhold until I see what it is these are being paid for.”

GOP Sen. Jon Kyl (Ariz.), who last year said the Big Three are “weighed down by … agreements with labor unions [and] obligations from previous contracts,” has now put on kid gloves in response to the AIG bonus contracts. Speaking on Fred Thompson’s radio show last week, Kyl said he hopes that Congress won’t confront AIG “in a demagogic or hypocritical way, but simply say, ‘Look, now that the government is helping you out, you can’t do that kind of stuff again. So either undo what you did, if you can, if it’s the right thing to do, or don’t do it again in the future.’”

Nor have Republican Sens. David Vitter (La.), Jim DeMint (S.C.) and Jim Bunning (Ky.), who all pushed for the UAW pay cuts as a condition of the auto bailout, been as tough on AIG. In a letter sent last week to leaders of the Senate Banking Committee, the sharpest request from the three conservatives was a subpoena for the AIG contracts to determine “what legal obligations did in fact exist to pay these bonuses.”

The UAW has declined to comment on the AIG bonus uproar, but op-ed columns posted on the union’s Website make clear that it feels autoworkers have been treated wildly unfairly relative to the insurance giant.

There’s good reason for UAW’s reticence. Under the Detroit bailout, the Bush administration required the automakers to craft new business plans — including pay and benefit concessions from the UAW — to prove to Treasury officials that the bailout payments aren’t in vain. The White House is expected to decide within a week whether the companies will receive a second round of federal help.

Other labor representatives, however, haven’t been so silent. Writing in The Huffington Post last week, United Steelworkers President Leo Gerard blasted the dissimilar treatment of blue-collar workers under the bailout.

“Union contracts at all sorts of companies across this country have been broken, bent, re-opened and renegotiated by cooperative labor organizations willing to accept a variety of cuts to preserve employment during an economic crisis caused by the likes of, well, let’s face it, reckless speculators at AIG!” Gerard said. “But, somehow, Liddy couldn’t find a way to break, bend, re-open or renegotiate contracts with the white collar workers who caused the mess taxpayers are both suffering and cleaning up.”

Last week, the House passed legislation to tax the AIG and similar bonuses at 90 percent, but a similar bill has stalled in the Senate until after the Easter break.

On Monday, New York Attorney General Andrew Cuomo announced that 15 of AIG-FP’s top 20 executives have voluntarily returned their controversial bonuses, representing roughly $50 million of the $165 million already paid out to employees in that division.

In the wake of Cuomo’s announcement, House Majority Leader Steny Hoyer (D-Md.) this week suggested that Senate passage might not be necessary. “If the money is returned and the policy is being carried out by the companies that received the assistance, the legislation may not be necessary,” Hoyer told reporters in the Capitol Tuesday.

Some experts, though, warn that AIG likely won’t be the only bailed-out firm that’s tempted to use the taxpayers’ largess to reward the same executives who ran the institution into the ground.

“Even if AIG is resolved in one way or another,” said Chaison of Clark University, “there will always be another AIG somewhere down the line.”