AIG Bonuses
Since this is what is abuzz these days, wanted to say something on the topic.
The proposal by Geithner to impose on AIG "a contractual commitment to pay the treasury from the operations of the company the amount of the retention awards just paid. . . In addition, we will deduct from the $30 billion in assistance an amount equal to the amount of those payments."
Yes, this is getting twice the $176M in bonuses. Sure does punish those responsible, huh? So dumb it hurts my head.
Think of all your buddies who work on Wall Street. Be honest with yourself when you answer this, while they are most likely not responsible for what is happening at AIG, how far away are they from justifying those bonuses to you when you see them at the next cocktail party?
5 Comments:
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March 18, 2009 at 9:45 AM
I work on an equity trading desk. We get paid off of what we as a department make. My bonus is the a large part of my yearly income. If the bond desk blows up and puts the firm at a financial crisis, I still expect to get paid based off our list.
However, as I understand it, a lot of these people were sales people slinging the very product that sunk the company. Under that sort of scenario, where we as a trading desk made money and met quotas but blew up the company at the same time, I would not expect to get paid. Nor would I expect to be paid, if my company were taking govt money to avoid bankruptcy. If the company had not been saved I would have gotten squat anyway. The whole thing is idiotic and criminal.
How does the US Govt not know that this is coming? They own 80% of the company. Are there any sorts of strings attached or is anyone asking "Hey just so I don't look like an ass, before I give you this wheelbarrow full of money, how is going to be spent?"
March 18, 2009 at 9:47 AM
You hit at the gist of the problem, rts. Bonuses in the financial world long ago ceased to be performance bonuses and became expected deferred salary. There's no "bonus" there in the minds of the recipients - this is just the way Wall Street gets its annual pay.
Your description of having your pay determined independently of the performance of the company as a whole is indicative of the problem with the compensation model in finance, as well. It incentivizes ignoring what other divisions within the company are doing. As we've seen, that's not a good idea, as the derivatives groups at big banks have burned down the entire house. No one else gave a crap what they were doing and how it might affect them or the larger corporation. They had their heads down trying to squeeze maximum profitability out of their own divisions.
At a law firm, attorneys earn more if they bill and collect more or bring in significant business, yes. But all revenue is pooled and then spit back out by a centralized comp. committee. There's no division of the profits of the firm up into baskets for the various practice areas.
I could not agree more on your last comment. I mean, seriously, is Treasury just totally ignorant of the public's feelings about compensation in the finance world? That anyone's even listening to this utter bullshit about "we need to pay these sorts of bonuses to keep people from leaving" when 50% of the jobs in Manhattan have disappeared in the last 6 months is UNBELIEVABLE. I mean, people were ready to grab their pitchforks when it was non-bailed out banks paying these sorts of things, and now the taxpayers OWN THE COMPANY. There are plenty of people smart enough to figure out the trading positions AIG got itself into, and they'd be more than willing to step in there for $250K/yr. right now after getting laid off from Lehman.
Also, I can't believe they're getting away with the "well, we're contractually obligated to pay these bonuses, as they're really more like commissions" garbage. What company's executives are so incompetent that they would contractually obligate themselves to pay commissions to the employees who ruin the company? The U.S. needs to force a breach of whatever employment contract is at hand. There are plenty of defenses, and the payees are not going to be willing to step into the spotlight to defend their money. They'd get lynched.
March 18, 2009 at 11:38 AM
I actually don't have an issue with people getting largely compensated based on how their division performs vs. the Company at large.
I think the centralized comp committee model works fine for a relatively small pool of people, but does it make sense when you have tens of thousands of employees that work in such disparate realms of the financial world? I'm not so sure that it would work.
With that said, I would like to see two changes: 1) If the Company doesn't hit some predetermined goal (e.g. minimum earnings) than everyone in that Company needs to share the pain. I'm not saying they get nothing, especially if their division blows away their plan, but it should be impacted no doubt about it. 2.)Bonuses need to paid out largely on a deferred basis (held in escrow) with multi-year clawback provisions that would allow the Company to reclaim the bonuses awarded (but not yet paid) if that Company's division ends up losing money on some of the deals that it did 2 or 3 years earlier that looked good at the time. This way, there is less of an incentive to do dumb deals just to get your numbers up that particular year. With a 3 year time horizon, most dumb deals would likely be discovered.
Obviously, this ties employees to employers more than they probably want to be, but I can't think of a better way of ensuring that people don't get paid our for doing dumb deals.
Now, as it pertains to AIG, as RTS pointed out- some of the same salespeople that are responsible for putting the Company at risk are the ones getting these "retention bonuses", how asinine is that? I can't think of a legitimate rationale for this. In the deferred bonus scenario I outlined above, not only would these m_fers not get their bonuses this year, but they would also forfeit whatever bonuses were being held in escrow for them from the past couple of years that had not been paid out as of yet.
Some pretty crazy stuff going on right now- don't you think? Congressmen talking about executives who should do the right thing and perform personal sacrifice..and others talking about imposing a 100% tax on bonuses paid out to AIG employees... this is a very strange time, very strange
March 18, 2009 at 1:46 PM
This isn't all that dissimilar to some of the "golden parachutes" that were handed out over the past 15 years to CEOs who were fired. The only difference is that times were good, so nobody raised a stink about it.
So far, Geithner has been very unimpressive...the repayment option is the dumbest idea I've ever heard. The only one that makes sense is the tax option, where the recipients essentially pay the bonus back to the gov't.
LH has it right when he says these are strange times. Newspapers are going belly-up, people are getting $1mm bonuses for f-ing up one of the largest insurance firms in the world, and states/municipalities are staring at billions of dollars in deficits. Awesome.
Go Gophers.
March 18, 2009 at 5:59 PM
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