Thursday, March 19, 2009
AIG, Bonuses, and Contracts- Oh my!
I am not an expert on the economy, the crisis, recession or anything in or near that vein. I'm an armchair politician, I suppose. Hearing the news reports and jumping to conclusions based on the scant amount of information provided. Case in point- AIG and the $165 million in bonuses provided to employees after accepting $182 Billion in government bailout money. Apparently there is a contract that promises bonuses to these employees. Edward Liddy, who came out of retirement 6 months ago to head up AIG to work with the government (and is being paid $1 per year), has gone on record as saying he finds the bonuses to be "distasteful." I work in contracts. I negotiate deals. And I want to know who had the brilliant idea to give these guys bonuses that weren't based at all on company performance. I can't fathom a situation where I'd be able to swing such a thing on a contract. Even more interesting is that these bonuses are specifically for employees in the financial services team- the group that is failing the most these days. These contracts are giving bonuses to employees of a division that generates billions of dollars in losses. No matter the economic conditions and the bailout... this contract was signed in Dec 2007, before the crap fully hit the fan, before bailout money was provided. But when the company was already in trouble. The contract is, specifically, an "employee retention" contract. The intent is to provide incentive for employees to remain with the company for 2008 and 2009 while facing a bleak future. And the contract guarantees big bonuses for failure. The bonuses are as small as $1,000. And seven people received bonuses larger than $3 million. The highest bonus was $6.5 million. For failing. For continuing to fail at a failing company. Edward Liddy has asked those who received bonuses over $100,000 to return half or more of their bonuses and several employees have already offered to return 100% of the money. I heard a news report this morning that Congress is considering a special taxation on bonuses paid out of bailout funds. 90% Can you imagine? Heck- might as well just offer the money back to the company, refuse acceptance of the bonus! Although... retaining 10% of a $6 million bonus would be $600K and I could sure do a lot to make my family comfy with that kind of money. Pay off our house and totally pad retirement and college funds. But I'm betting the person receiving that $6mil would think that $600K is a drop in the bucket. Side note- I'm reading that Liddy and his family and many of his employees have been receiving death threats. And that there is major security in place in the Manhattan office. That is pathetic and sad and crass and... just stop it! Of course, if we were in China, the people being "shamed" by these contracts and bonuses being unveiled would commit suicide under government pressure. So I guess some death threats aren't as bad a deal.