Arment Dietrich

The AIG Mess

By: Arment Dietrich | March 18, 2009 | 

In today’s Washington Post, current AIG CEO Edward M. Libby has written an opinion column with an eloquent explanation about the very-much-in-the-news bonuses given to those AIG executives.  Be clear, he is not calling them performance bonuses, but rather, retention bonuses. 

That alone takes away the argument that many of us have been making that executives who managed a company so poorly to put it in a dire financial condition, do not deserve such bonuses.  So the spin question is, were those employment contracts really written with “retention” bonuses or were they “performance” bonuses, or just promises of a general bonus, no matter what? That’s what I’ll want to find out.

According to New York Attorney General Andrew Cuomo, at least 73 AIG executives were given those bonuses, each amounting to at least $1 million. One might also ask, are those 73 employees so valuable and talented that they can’t be replaced?  To the tune of $73+ million in taxpayer funds? I would guess not, but, that is probably not the issue.  To read between the lines of Mr. Liddy’s column, those were employment contracts put in place by prior AIG management and they are legally binding documents.  Not to bash on the U.S. legal system, but I can only imagine the even more ludicrous amounts “we” would have to pay if the new AIG management decided that the company could no longer pay the contracted bonuses and greedy attorneys got involved in that gem of a lawsuit.  That amount of wasted money then would have likely doubled, tripled, quadrupled or even worse.  Is this what one might call “Caught between a rock and a hard place.”? I’d say Mr. Liddy is certainly earning his $1/year salary right now.

One last thought: does it feel to you that our elected officials are reacting in an “Oh crap, I should have thought of that” way?  Maybe they too freely handed our billions of dollars with no oversight, no strings attached? Oops.

To read Mr. Liddy’s full column: 

  • Bonuses are a way of life on Wall Street. They are not as easily earned, or even talked about on Main Street. So, whether they are instruments of retention or rewards really doesn’t matter. Main Street sees them as rewards, and in this case, rewards for failure. AIG and its Wall Street neighbors should’ve figured this out months ago. If bonuses are part of the salary structure, then they are using the wrong terminology. But isn’t this just one of many examples of the disconnect between Wall Street and Main Street? So, parsing words is another way of splitting hairs. The damage is done, the public’s perceptions are already engrained. What’s unfortunately being overlooked here is the blatant hypocrisy of Congress, whose members make it a regular practice of sneaking billions of our tax dollars into budget bills (earmarks, their version of rewards), calling AIG and others on the carpet for comparatively similar practices. So, the spin is on both sides of the hearing room table. But who’s calling Congress on the carpet and making them accountable?