A Real Simple Solution to the AIG Bonus Mess

Adding insult to injury, news broke over the weekend that instead of the previously reported $165-million AIG handed out in retention bonuses, the total is actually $218-million, an additional 30% kick in the taxpayers' groin. The AIG saga seems to get worse by the minute. On the one side, we have a mounting populist movement seeking everything from a return of the bonus money to public flogging of the executives who took it. And on the other side we have the Wall Street sympathizers and legal junkies who cry "witch hunt" and vehemently oppose retributive measures such as 90% taxes on the money, prosecution of "fraudulent" behavior, and most important, the voiding of the employees' contracts which promised the bonuses.

To be sure, for most Americans, the AIG bonus debacle in particular has come to symbolize the years of unprecedented greed and de-regulated hijinks on Wall Street by reckless, credit-default-swapping, derivatives-dealing cowboys who damn-near single-handedly caused the collapse of the U.S. financial industry. And as the average Mom and Pop fears for their jobs, their homes and their savings, it's easy to understand their gargantuan outrage and frustration with the current system in which these arrogant bankrupters are rewarded for their miserable failures with taxpayer money.

But there is a simple solution which is not only fair, it makes sense. In a nutshell, rather than allow these bonuses to remain intact or to take them away outright, how about deferring them until the companies and their troubled business units turn their financial fortunes around and become profitable? Now that's a novel concept, huh? Tying compensation to performance. Let's dangle the proverbial carrot in front of these high-flying Downtown deal-makers. You wanna get that million-dollar bonus, pal? Earn it, dammit! Stop losing money and start making it. And make enough to start paying back to your boss, the American taxpayer, the $200-billion your company needed in bailouts to stave off death stemming from your gross irresponsibility and high-risk activity. Then, and only then, will we be ok with you taking that huge paycheck. Whattya say, pal, deal?

Lastly, it's time to dispel a few of the biggest myths surrounding the AIG saga:

-"The contracts are legal and cannot be voided:" It's quite the convoluted argument that these employees have a valid legal claim to these bonuses when in fact their contracts would've been voided through bankruptcy had the U.S. government not bailed out the company.

-"We need to pay these bonuses in order to retain these employees because they're the only ones who know 'where the bodies are buried' and we need them to unravel this mess:" In that case, let's let every murderer off the hook--or better yet, pay them--because they literally know 'where the bodies are buried'....

-"We need to retain these people so they don't leave and go elsewhere and we can stay competitive:" First, where the hell are these folks going? Who's hiring on Wall Street? And, I know tens of thousands of unemployed Wall Streeters who'd gladly take these jobs left behind by the unretained.

Comments

[KillTheMessenger]

On what legal grounds are we supposed to do this?

ANYTHING we do with laws here interferes with a legal contract. Which means we are basically shredding our practice of not letting the government make arbitrary changes to contract law but having courts resolve these matters.

[anothervoice2]

Practical ideas will not fly with this Admin. Geithner and Summers (maybe even Bernanke) are part of the club that want to concede power permanently to WS:

http://www.rollingstone.com/politics/story/26793903/the_big_takeover/print

That is why there is no traceability of how bailout money was used and strong protections for exhorbitant WS Exec pay. The lastest Toxic asset plan unveiled today is also very typical of the WS-friendly but taxpayer-raiding policies. When McCain strongly supports Geithner, it is clear Geithner represents continuity in the policies of the W Admin. This is change we voted in!?!

[Jamie Kowalski]

Finally, an idea that makes sense. It certainly seems like the best possible comprimise from all angles. Actually, it doesn't even feel like a 'comprimise."

[TeeLolly]

Allowing the fat cats to get fat bonuses after "earning" them (1) presupposes that they can "earn" over three hundred times what workers earn producing a product or performing a direct service, and (2) promotes the concentration of wealth in the hands of a few. This skewed system leaves less money for workers and ordinary stockholders who pay taxes and buy products and services, exacerbating the crisis when credit dries up and jobs disappear. The fat cats aren't creating jobs in the US (more profitable to create jobs overseas), lending money (better to invest offshore), paying their fair share of taxes (thanks to the Cayman Islands and UBS) or buying commodities made here. To get beyond this crisis, the outrageous disparity in income and assets between the super-rich and everyone else must be reduced, and the earnings of both the top executives and ordinary workers must reflect the true value of the work they perform without regard to the power they wield.

[DesertDogAlpha]

Even better, give those employees who are truly key to unwinding the bad businesses at AIG and keeping the good businesses thriving restricted shares that only vest when certain key criteria are satisfied. Put the strike price at, say, $3/share - a price that the taxpayers would now be thrilled with.

But stand by for some of these guys to make $100 million if they do their jobs right and the "deemed share value" of AIG goes to. say, $25/share.

[KCC1]

One of the things I would like to know is how much were the salaries of the people that got "bonuses". I watched Liddy's testimony and he said that the "bonuses" were paid out for staying at AIG and "unwinding" accounts. Each one was given accounts to work on and when the work was finished they got the bonuses. It sounds to me like it was part of their compensation package. Essentially everyone at this unit of AIG is working themselves out of a job. Once all the accounts are "unwound" this division will be shutdown.

[GhmCalgary]

For what are these bonuses being paid? If I want to get a Cost of Living salary increase I have to demonstrate positive accomplishents. If the bonuses are being paid to retain the best and the brigtest, then I say let us hire the dullest and the dumbest because they can do NO WORSE than what the best and the brigthest have done and for much less.

[Pleneras]

For no reason other than to divide up diverty revenue from the company or shareholders to their pockets. There is no justifucation for it. Good performance means you get a great salary. They are already paid millions. It is a form of modern day mafia. In fact it's worst than the mafia. These people rob every citizen of a true flourshing economy and a decent standard of living. The crime is in those who made excuse for such payoffs as their culture implying nothing could be done. Anything that hurts the country can be stopped.

[johnie2xs]

What you forgot, Andy, was this; Tell them; If you choose Not to do it, you go to jail! Not only do you go to jail. but all their ill gotten gains will be confiscated by the Government.

Now, there may not have been laws in place saying that what they had done was illegal, per se, but there had to have been some questionable practices, or tortured standards; something. Maybe a forensic analysis of their operations will turn up something. Hell; everybody's always saying that no one knows how these derivatives work. right? Well; deconstruct them; see how these guys worked their suspect magic; If any of it looks illegal. slam their asses in the can, and confiscate, confiscate, confiscate.

[genxlib]

I am apparently one of those simpletons who don't "get it" but here is my answer.

If you sell an insurance product without the ability to pay it off, you have comitted fraud.

If I were to go on ebay and sell non-existent diamond rings to thousands of people then I would be guilty of a crime. the only difiference is that eBay is better regulated than the financial markets.

[ignorantwillyharper]

I like the Ideal of, when we're up and running at the right pace then pay them the bonus.
The question of where are they going to if they quit? Hell, if they quit with a six point four million dollar bonus, I for one would go to the Bahamas.

[BarryS]

Hire me. I'm sure I can do a better job. I won't lose 50 billion a year. I'm 100% sure of it. And, I won't need a huge bonus, corporate jet, servants, etc. Just medical insurance, and the usual perks given to the poor lower employees.

[Pleneras]

You don't even need to have your company pay for insurance with the salary you'll be making. No company should have to pay employees insurance. It is the reason why no one is earning a living wage.

[whoyle]

I have an idea. Why not let them fail - stop giving them money and then all the folks complaining about the money being given out as bonus money becomes a non-issue. Seriously, has any one on this blog ever run a business where you need to keep someone around to complete a job though you know they did a horrible job? Sometimes that happens. It happened to me when I had my business which unfortunately I had to sell due to the stupidity of the fed, including Greenspan and Turbo Tax Tim. Come on, you people all have money and would not put up with the s**t that has happened recentely without kicking your employees to the curb - don't actlike you wouldn't. When it is your money - you really get mad and you know it. As for AIG, the simple solution is to get government out of it and let it do what I had to do with my business. Sell what you could, save what you could and move on. Someone or another business will pick up what they have to leave behind. Government does not belong in this and to think any thing else is like hoping the sow's ear indeed does become a silk purse. Wake up....