Serious Studies

Re-Forming AIG Management

Kenneth Feinberg

I would suggest that compensation czar Ken Feinberg place the following ad in all the appropriate entities immediately:

WANTED: Bright, dedicated corporate professionals for key posts at massive insurance entity now essentially owned by the federal government. Positions open in finance and operations. Must be willing to work for only $500,000 per year, although compensation could increase with success (or not -- who really knows if Congress will have a problem with that). Age is not a defining factor, but applicant must be knowledgeable in the insurance business, adept at managerial arts, well-versed in reorganization technology, good communicator, willing to be paid for performance. Massive golden/platinum parachute not available, since job is underwritten by taxpayer dollars.  Job would start immediately, since employer is totally sick of current crop of whiny, entitled executives who fail to understand the implications of the word "bailout." Please apply directly to Office of Timothy Geithner, Washington, D.C.

I think he'd get a couple of qualified takers.

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Should be no shortage of applicants as today on CNN, they are talking about the economy needing 10 years of uninterupted growth to re-employ the nearly 7 million people in the US who lost their jobs in this last hiccup.

Somewhere out there amongst the 7 million unemployed there must be people who will work smarter for less money, that not being the case AIG can always do what American business has always done ,,,hire foreign workers off shore to do Americas thinking/work..

My own thinking is; somewhere out there in the financial forest, we are about to hear the crash of big over paid trees being cut down...and none too soon...

Do I get an expense account?

Have your people call my people.

Well, other than insurance industry experience and only just out of B-school, I'd take the job. I'm actually thankful to have a job right now, it has nothing todo with my B-school education, but if they want to hire me, I'm available.
I'm cheap too, I'd even take only 400K, maybe 350K if I get health insurance and 401k (still a 600% increase in salary for me).

500K is still a rediculous salary compared to the blue collar and front-line employees who actually do the work the company relies on to generate revenue.

Things would be great if the government just mandated everyone's salary. This would significantly reduce HR expenses for companies, eliminate needless negotiations and practically guarantee an appropriate allocation of scarce talent!

Come to think of it, they could also put in some nice price controls to make it easier for people to afford essential items, like food, gas and utilities.

Government intervention and price setting has historically always resulted in solid, well-reasoned and appropriate allocation of resources. That's why I can't understand why anyone would argue that government shouldn't be allocating human resources by setting arbitrary compensation caps.

Now if I could just get those images of lines at gas stations in the '70s out of my head...

My dear Bing and Ryan, from TX,

I could not have put it better:

Bing, 500K is quite a sum, but considering the task at hand, it's only fair. The meaningful ad ending sentence should be: "You will go down in History as the Savior of the US Gvt, the American People, and, yes, AIG, by the way"

Ryan:
your last sentence says it all:
"front-line employees who actually DO the work the company relies on to GENERATE revenue"

Meanwhile, Wall Street is feasting on foreclosures, on the faith of MILLIONS of unemployed Americans, and on 150.000.000.000,00 dollars bonus pool... (I refuse to use BILLIONS) that's a whole lot of zeros... Too many.
God help us all.

Obviously the CAPITALIST at Ryan's B-School didn't fully indocrinate him into the workings of our system - or prepare him for management roles going forward. Actually thinking about the average Joe in America? Ryan - your altruism belongs in the not-for-profit world - not the business world in America.

Oh yeah. I am sure some other CEO who makes 10X that amount and does a great job will jump all over taking a 90% pay cut. I would really like all these people who say that there will be tons of qualified people who would jump on the CEO job if they would be willing to do their own job for 10% of their current salary. Oh they won't. Same story. Just different (relative) salary numbers.

Jack,

Ouch.

To Let it Be

When we find ourselves
in times of trouble
Bother O, he calls to me,
Not speaking words of pecuniary,
AIG, AIG.

AIG, AIG,
AIG, AIG,
There will be no bonus,
AIGEEE.

And when the night is cloudy,
There is still a light
that shines on me.
Shine until the Hamptons,
AIGEEEE.

AIG, AIG,
AIG, AIG.
Wilbur Ross wouldn't buy you,
AIG, AIG.

AIG, AIG,
AIG, AIG,
Warren Buffet passed on you,
AIGEEE.

What is needed at AIG is a monetary culture change, unlike the Wall Street culture and more like the Las Vegas culture.

At Wall Street, the culture is God helps those who help themselves.

In Las Vegas, the culture is God pity those who help themselves here.

Wall Street must opt for a new image unlike the feed me, I'm hungry image, and more like the Bugsy Seigel image.

Bermie Madoff, Martha Stewart, Ivan Boesky, Levine, and Leona Helmsley to mention only a few, were all Wall Street corrupted. Las Vegas corruption is almost unheard of. Los Vegas CEOs' are a very quiet breed.

AIG should solicit resumes' from unemployed casino CEOs if there are any available. Chow!

I understand that many of their top people were leaving due to the compensation caps (or the prospect of caps extending even lower in the executive ranks) but that several had reconsidered over the weekend, and decided to stay.

It will be amusing to see AIG eventually prosper under the supposedly less talented leadership that remains despite the cap. I'm also thinking that we may be seeing the start of a massive correction in compensation levels for corporate heads......just as the real estate bubble, dot com bubble, and gold bubble eventually burst, we may finally understand that these superstars bring little of actual value to the table (other than repulsive and unrestrained greed)....a much deserved rupture of the executive 'pay bubble'may well be in the offing.

It's about time we returned to a much more reasonable executive compensation to average employee compensation ratio. This will of course, be a deeply felt blow to the b-school people who were counting on a very rich payout for a training that required very little intelligence or discipline to acquire. Sometimes investment in objects of little instrinsic value to society (like Beanie Babies and derivatives) just doesn't pay off.

Those with pay less than what is being offered are always willing to take more.
Those with pay above what is being offered are not so willing to give up what they have.

Why does one person get paid more than another?..simple... because he can.

Pay them what they are due,and demand results that the pay should command. If the results are not achieved, replace them for cause with someone who can achieve the results...ask any Pro or College Coach how it works.

Sorry Paul, didn't mean for you to get that big a dose of reality all at once, but the unemployment stats speak for themselves, bleak and really bleak projections even with no future hiccups to claw back progress...

One way of looking at it is: 700,000 jobs need to be created every year for ten years ignoring new entries into the workforce (kids growing up and leaving school)...just to re-employ those now out of work..

add to that: 1/3 of the federal income tax collected goes to service the interest on the national debt...(rates are really low right now, imagine a 2 % rate hike added to that bill)...

Bottomline: The Fed cannot raise interest rates but they can collect more tax by having a VAT or GST tax, which will give them various rates of collection to beef up the treasury and pay down the debt...before foreign note holders dump the currency and force the country into default...

Ceo pay/bonus is just a red herring to keep the masses occupied from seeing the real issues.

Get ready for a new sneaky tax on everything.

Bing please add: must look like the typical CEO, Must have nice hair, wear $2000 suits well, able to speak on TV without saying anything, must look honest when he testifies before Congress and must be able to sound intelligent when he knows nothing. Except for the nice hair bit, I will take the job for 100K and my choice of secretaries.

Jack, I agree with your analysis, except for one point. Although politicians will claim that they are raising taxes to pay down debt, the truth is more like the new taxes will be spent on yet more pork to get the politicians re-elected by an electorate that buys that line time after time.

Generally, I don't like doomsday scenarios; but I don't see much in our recent history to convince me that we are on anything other than a downward spiral.

Let's really complicate the issue:

"Pay Negotiable. However, the applicant must look, think, dress, and produce results like Warren Buffett."

That would separate the men from the boys.

paul,

very creative and intuitive.

Hank Greenberg?

To all my fellow Americans, so proudly speaking of Capitalism and "The American Way"::::: Remember, comrades, that AIG no longer exists as a capitalist entity, but have in fact become insolvent, bankrupt and it is backed and de-facto taken over by the government of the United States of Socialist America (USSA). The U.S. government is perfectly within it's rights to define the salary requirements of all it's employees.

St. Cloud Joe,

Thanks. Bing lets me have fun with these issues.

For me, It beats the hell out of throwing oneself headlong into a wood chipper.

Austin Mike,

The dead ballplayer?

That could work!

Sign me up. The first thing I would do as CEO would be to fire myself so I can collect my severance package.

Wouldn't it be fun to have the gov't. add to the pot and excitement with tarp funds and try out a trading places scenario:

$2000 suits for the rescue mission crowd-cots for the status quo group. Give 'em 6 months to turn their respective situations around and the one with the best ROI wins the exec job PLUS BONUS

...not to mention a reality show folks might actually watch to replace Kate and whatever his name was

No, Paul in Miami, Hank Greenberg the former owner and founder of AIG who despite his many shortcomings may very well be the solution to saving the company.

Cash_IsTrash, your point is well taken. Assuming that the government is a significant owner of the company, it has a right to weigh in on pay practices. If Uncle Sam is the majority owner, he obviously commands a larger vote.

However, I do believe that arbitrary pay caps are one factor that will lead the company to underperform the market. Lots of people say "I would do the job for $500K". But if another employer offers $750K for a similar job (without the interference of an opinionated Uncle), you can guess where the talent will go.

There's a reason why the Yankees keep making it to the playoffs year after year.

ChicagoSail, you're a thinker!

Nixon, the republican president, initiated price and speed controls in the 70's during the oil embargo to inhibit that exact thing from taking place at that time.

Are we headed back to the 70's mindset? Is our economy schizophrenic? What have our leaders done, again?

Just some food for thought.

My point is that AIG no longer qualifies to be called a "company". I is a bankrupt entity which was taken over (even if overtly) by the government. The government employees are either to accept the salary determined by their employer or to look for another job elsewhere.

Bob, your memory is impressive. I'm glad that you noted that the price controls were put in place under a Republican president, Nixon. The example illustrates that it's not a political argument for or against a party. Rather, it's an economic argument against government intervention in markets.

I just hope we're not headed back to the 70s. Although those were great times to see a ball game, when stadiums didn't have luxury boxes and seat prices hadn't yet spiralled out of control.

“Pay Negotiable. However, the applicant must look, think, dress, and produce results like Warren Buffett.”

OK, if I have to look like Warren Buffett, I'll pass.

Chicagosail, I hope you're not silly enough to believe that free markets are the solution to all market evils. You do understand the concept of market failure, do you not?

I agree that price controls are generally an abject failure (for goods of real value or production costs that can be accurately established)...but I really don't accept the argument that the supposed 'talent' at AIG is of significant intrinsic value, and find your concern for their departure laughable. If there's one thing I've learned in many decades of experience is that 'the imperial lords' in the corporate executive suites generally possess a rather exalted self-view of what, in reality, is often a mediocre degree of talent (after all, they've endured generations of hopeful underling brown-nosing to convince them of their superiority). You can put a $2000 suit on a turd, but it's still a turd.

You guys are getting a little arcane.

There's a book waiting to be written about the AIG intervention, which will:

* Explain clearly in plain English how Greenberg's decades of power concentration, private dining rooms and butlers, offshore vehicles to benefit himself and trusted lieutenants, financial incentives for top leadership and how that affected behavior, using the insurer's balance sheet to trade derivatives and commodities in the financial products group, how financial products added to the bottom line, and Greenberg's ouster and the politics surrounding it - how all of that added up to the AIG behemoth, just before failure;

* the nitty gritties of the government's intervention in AIG, leading up to and in the immediate months surrounding September 2008, all the stuff that's being stonewalled in front of bothersome Congressional committees and today's new Warren commission - this isn't Watergate but it's still stonewalling;

* And this book, intervention under a Republican administration and furtherance under a Democratic one, may finally put to paid all the simplistic idealogical arguments that get trotted out on talk TV and give us, the taxpayers who are footing the bill, a hardheaded, sober view of what it's really like today in the nexus between Big Business and Big Government;

* And I'm not too cynical to hope that sometime within the next 10 years, some major heads are going to roll and reputations (rightly) capsized by these revelations.

No insider info; just saying what it smells like to a longtime observer.

Ok, the so called thinkers, performers, are complaining. If they performed well, then why is the economy in a mess? They failed, by using dirty tactics to cheat the economy. This is capitalism, rooted in proven principles. If you take a short cut, it will bite you. That's why they deserve $500K.

Change the limit to $100,000 and you may have a chance to get smart, energetic folks who will work in the best interests of the company, not for themselves. We feed too much of the shareholder's cash to execs, and see what happens: they feel entitled. Hmmm. Then again, that seems to fit right into the current administration's policies for all of us.

former 15 YR AIG employee, the management have no Idea what they're doing IT 'S NOT WHAT YOU KNOW IT"S WHO YOU KNOW TO GET A PROMOTION.

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