Bailed-out insurance giant AIG will no doubt be a heated topic of discussion today, with The Wall Street Journal and other news organizations reporting that the failed and essentially insolvent company is vowing to pay out $450 million in bonuses to its “top performers” — you know, the folks in the financial products unit, many of whom contributed to bringing the company to ruin and helped tank the entire economy in the process.
We should all have jobs like that.
My favorite non-explanation comes from AIG’s leader Edward Libby, who said in a letter to Treasury Secretary Timothy Geithner that AIG had to pay those big bonuses to keep all of its super-talented staff, The Washington Post explained. Those highly prized folks might leave the firm, Libby said, “if employees believe that their compensation is subject to continued and arbitrary adjustment by the U.S. Treasury.”
Those employees might actually have a point. When a company takes $170 billion in taxpayer money to keep itself afloat, there’s always the possibility the government might have a few things to say about how those funds get spent.
And this is one of those times.
Clearly, the Obama administration is ticked off about this whole thing, or they wouldn’t have leaked the bonuses payments all over the media. But that’s not enough. This whole mess raises a raft of concerns that aren’t assuaged simply by knowing that Geithner is really, really mad.
Compensation contracts are renegotiated all the time in corporate America. Surely, some court or judge would be open to the reality that circumstances changed greatly after those bonuses were initially promised, before the financial crisis began. AIG could tell the employees to go ahead and sue. The company might either win, or its legal costs and possibly lower bonus payments still would be less than the $450 million. And AIG would set a precedent – this isn’t the way the world works now. We could be on the precipice of a depression. You don’t get a bonus just for showing up for work anymore.
Geithner could say this to Libby: Fine. You pay the bonuses, we take our money back. This would be my preference. It also would severely lessen the chances another bailed out firm would try to pull this stuff.
Geithner could say to Libby: Fine. Let those employees walk.
I’ve raised this point before: where are the companies out there dying to hire these people? The most recent experience on their resumes is at a company that failed spectacularly. They worked in the financial products unit — which totally blew it. What firms, exactly, find themselves in dire need of someone highly skilled at devising credit default swaps? Where are the feature stories in Fortune about the race among corporations to get their hands on prized former AIG employees?
Call their bluff. If they all go, there are enough other unemployed or underemployed people out their with financial services experience that I don’t see the difficulty in filling the jobs. And next time around, maybe AIG should look a little closer at character issues and ethics awareness. Just a suggestion.
AIG may have thought it won this round, but I suspect it badly miscalculated. This story is not going away anytime soon, and angry lawmakers and the public will be pushing for even more punitive measures. Government officials are said to be “exasperated” with AIG over the bonuses. That’s nothing. Wait until it sinks in with the rest of us.
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