Public morality falls to a new low-level when outrageous acts are revealed but rather than being soon corrected -- they are excused. Give me a Madoff, who at least spoke of remorse and apologized, on his way to jail -- instead of the AIG executives and their defenders. It has just been revealed that AIG will pay more than $400 million in bonuses to its employees who miserably failed their business and have cost the public, so far, more than $170 billion. (The bailout for the whole country is only five times larger!) In response to rather mild criticism from Timothy Geithner, the Secretary of the Treasury, who called the bonuses unacceptable, they were restructured, resulting in half being distributed immediately with the rest to come in later installments -- provided AIG makes progress in restructuring and repaying the government.
AIG and US Treasury lawyers justified this outrage by stating that AIG was under contract to pay these bonuses and might be sued if they were not paid. When NPR reported this news on March 15 another related item followed, although I doubt NPR deliberately strung these two stories together. It reported that the union of the employees of the San Francisco Chronicle agreed with management to renegotiate its contract to allow the company to fire workers without regard to seniority, work longer hours than the contract called for, and take fewer paid days of leave. The lesson for the day, one that the high-powered lawyers at AIG and at the Treasury seem to imply they have not heard about, is that contracts can be renegotiated. You may say, "Well the union had no choice, as the paper was on the edge of bankruptcy." Well I have news for you, AIG is in the same place.
The validity of the contract needs to be contested in the first place. Bonuses are for performance. Any contract that grants executives bonuses whether or not they deliver, even when they drive their corporation off the cliff, is a violation of the corporate board's obligations to the shareholders.
Such contracts should be renegotiated, post haste, all over the place, surely as a precondition for receiving public funds.
The lamest excuse is that unless paid through the roof, these precious executives may leave and work elsewhere. For example, AIG chief Edward M. Liddy voiced his "grave concern about the long-term consequences of the actions we are taking today," claiming "We cannot attract and retain the best and brightest talent to lead and staff the AIG businesses... if employees believe that their compensation is subject to continued and arbitrary adjustment by the U.S. Treasury." This argument is as valid as a three dollar bill. There are damn few places who want these types these days. Wall Street is filled with executives seeking work. The financial sectors of other nations, even China and Dubai, are cutting back. Far from jumping ship, these executives are lucky to have a job, even if they are not enriched by bonuses they should not have anyway.
Finally, if indeed these executives, who got us into the trouble in the first place, did quit, this might help open the ranks to some people with rather different and much needed skills. It would give the public director for AIG a chance to appoint some people who know how to deleverage rather than pile undue risks on top of unreasonable risks, who can tell the difference between rank speculation and solid business, and who are willing and able to do honest work even if granted bonuses only when they deliver.
Amitai Etzioni is University Professor at The George Washington University and author of The Moral Dimension: Toward a New Economics. He can be reached at icps@gwu.edu.