Serious Studies

Recommendation for AIG Execs


Let me ask you a question: If you were a passenger on the Titanic, and somehow managed to wangle your way ahead of the women and children onto a life boat, would you demand to take your luggage?

I don't think that's a far-fetched comparison. Here we have a massive company that hit a huge iceberg - this one of its own devising - and just as it's about to sink under the water it receives a timely and enormous rescue... and the guys who ran it into trouble in the first place are now leaving the boat with their silverware, furs and jewelry intact.

Of course, these are insurance guys. I don't know what we all expect of them. In my experience, insurance guys are trained to justify just about anything.  Last month my health insurance company told me that a 5 a.m., six-hour visit I made last summer to the Emergency Room of my local hospital was not covered because it was not an emergency. It's not that hard for people trained in that kind of reasoning to tell themselves that they're entitled to their legally-promised bonuses.

The thing that's interesting in this case is how many AIG executives seem to have mandatory boni in their contracts. In my experience, perhaps the top five guys in any corporation usually have that kind of protection. Here we seem to have an entire executive class that has the clause in their deals. I guess wish I had their attorney or worked in an industry that while it is so rigorous with others is so generous with itself.

There are, I suppose, only two solutions to this problem going forward. The first is for Congress to immediately pass a law that any firm that receives bailout money will be under certain constraints:

  • No bonuses not approved by the taxpayers;
  • No boondoggles to which the taxpayers are not invited;
  • All executive expense accounts to be reviewed by Warren Buffett.

The other solution is more difficult: Trust in the people who run our financial system must be restored... one step at a time.

Wall Street thinks its problems are related to objective measures such as debt, equity, long and short selling, broken models, secular issues afflicting certain key industries. That's nonsense. The reason why everybody is off of the investment train is a lot more simple. People hate Wall Street and the business people who work in or around it.

It's not hard to see why. It's pretty clear that as things stand the interests of Wall Street are not those of working corporations and the people who are employed there. Americans are enraged and disgusted because they were sold a bill of goods and now they see the light. At the end of the great, decades-long confidence game the Street has run, we are all out of that commodity. No confidence, no investment.

How to restore that trust? I can think of one thing that could be done immediately. It's not easy. It's totally counter-intuitive. It will never happen. But it would be an excellent gesture.

The AIG guys should renounce their bonuses. Their management and the government have no legal standing to do so. They're going to have to do it for themselves. For all of us.

I say this in full knowledge of how improbable and difficult this would be. I know a whole lot of people, myself included, who depend on their bonus to live. It's not a frill. It's part of our compensation that we wait for, plan for, put our kids to school with. We don't have yachts. We don't have polo ponies. We have mortgages and child support and elderly cocker spaniels who have kidney trouble. That's what our bonuses pay for.

But most of us don't work for companies that have screwed up the entire economic system of the world. Most of us don't work for corporations that require the People to step in and save their butts.

The effect of such a renunciation would be immediate and dramatic. "Gee," people around the world would say. "Maybe American business people aren't total ethical morons after all."

It's a first step. Somebody has to take it. Why not the proud, courageous insurance men and women of AIG, standard-bearers on our collective  march toward a new tomorrow?

48 Comments Add Comment

I really don't understand the new way that the term "Bonus" is being used. How can it be a bonus if it is in your contract?
Weren't bonuses originally money that the company gave out at the end of the good years as a reward for excellence?
Perhaps, the media is now using this rather than whatever terms are actually used in the AIG employment contracts so they can stoke up the fire in the general public. Of course, that would never happen.

take it from someone who's seen the inside of the beast - those execs will be complaining they didn't get more.

No kidding about insurance execs being protected! I work for State Farm, and all of management (from lowest project manager on up) gets what is called a MIP (management incentive program) bonus (in the multi-tens of thousands of dollars each) just for being part of management. They’re treated as a group, so as long as most of the goals are met, everyone gets the bonus, no matter if they were a high-flyer or a boat anchor. Oh, and what do non-managers get? If we’re lucky, our bonuses (which are based on the dog-eat-dog individualism eschewed by management) are a couple of thousand bucks. This from a company that made a NET $5-6 billion profit last year.

So, yeah, insurance execs are a real different breed.

Mr. Bing,

The assumption, however tongue in cheek, behind your post, seems to be these men and women of AIG have learned something important, something valuable.

Yes, they have learned that failure on a monumental scale has no meaninful negative consequences; that is unless you are an American taxpayer. And they probably also learned to get off the merry go round sooner next time. The fact that they didn't, only points to their lack of mental acuity. Did they learn nothing from the Dot Com millionaires who were smart enough to cash out last time just before the spin slowed?

"Why not the proud, courageous insurance men and women of AIG[?]" Maybe because there aren't any that fit that description? The collective attitude on all of Wall Street is, and has been for some time, "I got mine." The world economy can tank, they don't care, because they're headed to the Caymans with their bundle.

I saw an article somewhere today about Obama's careful dance with populism -- scold Wall Street, while at the same time giving bailouts. The article noted the really hot anger out here in the world beyond Manhattan, and generally referred to it as "dangerous". They meant dangerous politically, but I think it goes way beyond that. Remember, there are a lot of gun owners in the U.S. It's only a matter of time before someone starts taking matters into their own hands. Not all of them will be satisfied with the standard murder-the-family-and-then-commit-suicide-because-we're-broke scenario. Some will find other targets. I suggest that the AIG guys might want to watch their backs.

AIG should list all the executives names so the public knows who the bonuses went to. The government owns 80% of AIG. So the government should "vote" in a new board of directors and ceo and then have them fire every employee who drove the company down. Then the government should tell the IRS to do a personal audit on all those employees for the past 10 years. If any of them should have even a typo on their tax returns, then they should be charged with tax evasion and jailed.

The same thing should happen in fannie mae and freddie mac

"The government owns 80% of AIG. So the government should “vote” in a new board of directors and ceo ..."

If we were Venezuela, this would have already happened. There'd be a new board of directors with their feet up on the boardroom table, smokin' cubans and chasing the secre ... er ... administrative assistants through the halls. Somebody phone Hugo Chavez, we've got some job openings.

Hi Bing -

I just wanted to stop by and say...I'M PISSED! The whole AIG situation is beyond scandalous, and the idea that the freaking US Government can't put a stop to all this bonus distribution is laughable. We supposedly have the strongest government in the WORLD. And they own a majority of AIG. And AIG gets to dictate the terms? PLEASE!
We gave them the money, why can't we take it back? Because of the law? Last time I checked, Congress makes laws. Seems like a no brainer to me.

I'm being laid off due to reogranization by one bank that received $25 billion in taxpayer money. Another bank that I do business with, which also received $25 billion in taxpayer money just screwed me by axing by credit card limits 95%. 8 years, no missed payments, very small balances. Would have been nice to have the extra wiggle room there in the coming months, but I guess not.

Populist rage? Yeah I'm feeling it.

It's the idiots in government that caused this bonus problem.

"Here's billions of dollars, no strings attached!" What did they think companies would do with the money, saintly things or business as usual?

I have a couple hints for government idiots who are doling out money, including Senators: 1.)Don't expect incompetent failures to become competent dogooders. 2.)Grow some gonads and define exactly what can be done with the money that is doled out. (For example, lend it, invest it, etc.)

Idiots. Their stupidity has finally compounded and paid off in worldwide depression.

That whole excuse that AIG is bound by contract to pay the bonuses is hogwash. AIG should just breach the contract. What will the execs do? Sue them? Good luck with that. Even those dumb execs would have to know the futility in that. It's not like they are secured creditors. Get in line with all of the other unsecured creditors.

I agree with Steve and FC but we all know it will never happen. The way that money is getting printed out to back these bailouts will cause our currency to be worthless. We might have to start going back to the barter system. At least, we know we can afford that system if all else fails.

If the justification for the high salaries and bonuses for the Wall Street crowd is that they have created value for shareholders, exactly what should happen when they destroy that value ? The bonuses should be forfeited because no one created value.

When are we going to shift our focus back to growth? A rising tide lifts all boats. Trying to drag everyone down to a low common denominator is getting boring.

Shouldn't we all be worried about making our own paychecks bigger, instead of wanting to make our neighbor's smaller?

Besides, $165 million in bonus money is only around $107 million after federal taxes. That's not worth focusing on (just like the sundry golf outings and corporate retreats weren't either).

I know a whole lot of people, myself included, who depend on their bonus to live. It’s not a frill. It’s part of our compensation that we wait for, plan for, put our kids to school with. We don’t have yachts. We don’t have polo ponies. We have mortgages and child support and elderly cocker spaniels who have kidney trouble. That’s what our bonuses pay for.


This attitude is exactly why the economy is collapsing.

Why do people with less money think it is right to cheat others with more money? These executives have worked just as hard as everyone else out there. They earned their money and they are legally entitled to it. Why should they feel guilty and give it back? They did nothing wrong.

The whole 'Robin Hood' mentality that the middle class has is sickening. I just do not understand what would be accomplished by stealing money from one group of people and giving it to another.

I mean, most folks in America make more that the average Indian, Chinese, Brazilian, or Zimbabwean worker. Shouldn't we be rejecting our bonuses and offer them to many of the people who live on less than a dollar a day?

No one in America is entitled to a mortagage. No one was forced to have chidren in order to pay child support. I don't even want to say what I think of a dog owner who has to pay a medical bill for his pet. Americans and selfish, shallow, narcisstic, and ungrateful. Instead of being happy for people who are successful, Americans tear down those who make great achievements.

Taking money from the rich and giving it to the middle class is wrong. If you believe otherwise, your money should be taken from you and given to the poor of the world. You will then see how stealing from others hurts everyone.

In all seriousness, this much government intestment should have included seats on the board, filled by court-appointed trustees. Executive compensation should have become subject to board review.

Boards of Directors exist (at least in theory) to protect the interests of the shareholders. In AIG's case, that's us.

I'd like to know what those jackals are doing with my tax money. When I sent it to the government, I thought it was going for bombs and such. I figure I've paid for at least one cruise missle by now and I want some bang for my bucks, dammit!

If I can't get that, how about at least giving me the peace of mind that my money is not being handed out by scheming idiots to other scheming idiots? Or is that too much "shock and awe"?

Sure, AIG might swear off the addiction to entitlements today ... but what about tomorrow?

Very simple, the government use its majority ownership to force management change, and put everyone in AIG to government pay grade and they need to reapply for the job using government KSR. The people who are contractually required to pay bonus will considered as severance package. They will be terminated immediately.

The AIG bailout was designed to save the world financial system from catastrophic failure.

These bonuses are dogastrophic!! One of these bitches should certainly be considered for best in show at Westminster.

"I saw a werewolf with a Chinese menu in his hand."

Oh Warren, if only you had lived to see this.

Ah ouuuuuu, Werewolves of Wall Street!!!

Draw Blood!

Admit it folks. Wall Street and investing in companies is a giant con game. As long as the next mark is willing to pay more than you did for your stock the game goes on. If you need a "thrill", play the ponies, pull the lever on the slots, roll the dice, go all in on the next card. At least you will know within minutes if you have scored or not. Better than "invest for decades' and have the rug pulled out from beneath you at the end.

Yeah, so lets get all mad, feel ripped off, kick the dog and yell at the kids because it is so unfair... yup, that will help huh.
Oh and chocolate is not the answer, oh wait, maybe it is.

Yes, Jane. Chocolate IS the answer.

In response to Yadgyu and this blog, I have no problem with wealthy people and upper class people keeping or getting the money they EARN. However companies like insurance basically make money by taking it then in the form of premiums and then work as hard as possible NOT to pay out to people who actually need the treatment. This is wrong on multiple levels and degrades an already fragile economy. Remember it’s not the wealthy that run the economy it’s the poor who buy the crap they put out, and if you put too much crap on the table you have essentially bleed your source dry. Remember you can sheer a sheep many times but you can skin it only once.

How can a klan be rewarded, and even paid for disreputable conduct and behavior in a publicly trusted office? Slick Willy attorneys who use their positions as a ruse to snipe on the unsuspecting investors? Seems like the game they play? for sure!

The common ground of the greatest generation was the call to duty in time of war. Those who didn't serve in active military had to be in civil defense or a defense related field, or the bottom of the totem pole---4f.

Today, the privileged dwell in their private cacoons, or bubles---never to stir the earth or irritate gravel; they are quarenteened from joe public with their entitelments and inheritances.

The one positive event about this financial malaise is the exposure of the inner workings of capitalism gone wrong: this event, for the most part, will not be forgotten, nor forgiven.

Multiple millions of people have been screwed in this ongoing financial malaise, one might question how many more millions are stranded in a tunnel with the oncoming train and no where to run.

I swear, sometimes Yadgyu is SO over the top that I'm sure he must have one hell of a tongue planted firmly in cheek.

"I just do not understand what would be accomplished by stealing money from one group of people and giving it to another." Gee, neither do I. Let's ask the folks at AIG, who have massive experience at fraud (aka, stealing).

"Instead of being happy for people who are successful, Americans tear down those who make great achievements." "[G]reat achievements". Wow, so that's what it's called when your irresponsible actions are responsible for world economic collapse. Who could have guessed?

The only sensible course of action is to completely stop the bail-outs...let these impoverished financial giants accelerate their own destruction by paying out the alleged 'contractual' bonuses on their own dime...or my favorite..."we've got to pay these bonuses or we'll lose talented executives to competitors". What talent and what competitors?

They're counting on the fact that we've all agreed that they are 'too big to fail'. Maybe we ought to reevaluate that position. Bonuses!....they, unlike increasing numbers of Americans, are simply lucky to have jobs. What ballsy greed.

These guys had a perfectly legal contract and contractual bonuses. They are entitled to them. Its in the contract. How can anyone come along later and vary a perfectly legitimate contract just because circumstances(which are not mentioned in the contract) change. Its like moving the goalposts during the game. If its the law, its the law, we cant keep changing contracts on our whims and fancies

Wall Street and 401k are all just another form of gambling. When everyone wakes up and realizes a bunch of people on Wall Street pushed this, the days of the Street will be over and we'll go back to saving cold hard cash in the bank.

Just think about it and what Wall Street does day to day and what your 401K is. It's gambling.

I totally agree with the 'happenings' experienced by AIG customers. I claimed my health insurance expenses which incured last year and after 2 months, I was paid 50% of that. Giving a word is easy, but taking a stand on it is far much difficult. In recent economic crises, I think insurance companies are still doing well. Crises started from oil industries but soon it covered all other industries. The given artical is good enough to throw light on 'happenings' experienced by middle class people.

If they take a bonus, then they should be terminated. Anyone that shows such a callous disregard for the average taxpayer that makes a fraction of what they make and are forced to pay their salaries doesn't really need the job - and they should be handed their walking papers with their bonus check.

this is wrong on so many levels. both the AIG jackals for continuing the status quo and for a government enity to have the ability to tell a corporation how to pay it's workers.

it's simple solution - there should be no bailout. where's the manual which dicates how these arrangements are going to work?

Would we be having this conversation had we (taxpayers) not given money to various businesses? To me, this is the primary issue. We should not have given anyone bailouts. They got into this mess as a private company and they should solve their problems privately. The government's job is to enforce the legal contracts and ensure all parties play fair. As I tell my clients, caveat emptor.

"I know a whole lot of people, myself included, who depend on their bonus to live. It’s not a frill. It’s part of our compensation that we wait for, plan for, put our kids to school with. We don’t have yachts. We don’t have polo ponies. We have mortgages and child support and elderly cocker spaniels who have kidney trouble. That’s what our bonuses pay for."

I'm sorry but I don't care what your bonus goes to pay. I was taught from a very young age to never depend on overtime, a raise, or a bonus. If you are living on bonus money as if it were guarenteed income that's on you. A bonus is just that... a BONUS, on TOP of your pay for PERFORMANCE! Everyone should stop counting on money they haven't made yet. I'm sure everyone's salary goes to expenses too but that isn't exactly guarenteed either as many people have been shown all too well...

God's honest wife was just told last Thursday she is losing her job of 23 years in the Insurance industry...consolidation of operations or whatnot...we are pissed...yet there seems little we can do except ball up our fists and shake them at the sky, screaming "WHY???!!!"

I got a nice promotion last January, it looked like we were starting to get ahead, but indeed we are looking at another net loss for our household after this grim news...

Oh freaklin' well...such is life in our times...

Paul - in Miami, I love it!!Werewolves on Wall St.

You know, after thinking about this situation, it really only confirms my lifelong experience with insurance agents and underwriters. I yet to meet one that wasn't an oily, sleezy, creep. Probably just stereotyping on my part. I'm sure there are perfectly nice taliban out there too.

There's an interesting article in Tuesday's WSJ about how some of the banks are looking at raising base comp as a work-around for bonus limits. Seems like a reasonable solution.

These guys aren't stupid, and they don't work for free. Most of the line guys (i.e. those who aren't executive management) can point directly to their revenue sheet or trading P&L from the prior year to demonstrate their worth to a firm.

If a company won't pay up, the talent walks and takes their clients/trading strategies with them. Talent doesn't care if their employer took TARP money, they will walk if they are not paid. That outcome is bad for the company, and anyone who owns stock in it (including preferred shares...)

Since when is a contract a contract ? Ask the auto workers. Ask any owner of a pro sports franchise. If AIG had been allowed to go bust, would these guys be getting their guaranteed bonuses ? I think not.

Bing, no populist myself, I'm still furious right there with you and most other posters here about AIG. But please don't paint all insurers with the same brush! That won't do anyone any good.

Part of the reason I'm hacked off, is because I work for an insurer that is completely solvent. Yet we lost $ like most folks did, in 2008. Our CEO, like a man, took no bonus or raise himself. Company officers went right along with him -- only admin and analyst types got raises or bonuses.

And you know what? As one of the officers, I couldn't be happier! Until, that is, I find out that insolvent companies, on taxpayer life support, are still paying whopping bonuses to their execs. I'm still fine with my situation -- I just think those guys should be absolutely ashamed!!

But Bing, folks out there need to know there are insurance companies out for the greater good, whom they in fact can trust. Not advertising here, so I won't name my company, but with a little research . . . .

The situations are all matters of
the heart. AIG there will be a heavy price to pay if you keep the money. No good will come from AIG executives obtaining that money.

To the tune of Start Me Up:

If you prop me up,
If you prop me up,
I pay myself a bonus.

If you prop me up,
I'll never ever ever stop!!!!

You, you, make a dumb ass shine!
You, you, suckers only whine!!!

If you prop me up,
If you prop me up,
I'll never stop.

Re: "I know a whole lot of people, myself included, who depend on their bonus to live. It’s not a frill."

Depending on a bonus to live is just another way of saying that bonuses are wonderfully easy to get used to. But let's remember the phenomenon does not change the definition of the word.

On another subject, what do you think of emailing the leopards of Africa to change their spots for the good of the jungle?

once again Bing and the rest of the posters blew it.

Fell victim to an old Carney ploy, Bent over to pick up a few million and had the govt. going through your pockets for Billions

The bonuses are a smokescreen to keep the mob from focusing on the real issue,,,who decided to dress the AIG corpse in a new silk suit.

There is an old saying: you can fool some of the people some of the time, but you can fool the American Taxpayer ALL of the Time.

This is Heads UP Footfall quite looking over at the cheerleaders and keep your eye on the ball.

I'm prefacing my main comments by saying I'm as indescribably angry as all of you about the massive extortion we're witnessing - Merrill Lynch and AIG in particular. If your company loses $14 BILLION you don't HAVE ANT MONEY! How do you get your hands on $4 billion more to give out as bonuses? I think what AIG and Merrill Lynch did is just as criminal as Maydoff's actions. I hope the government figures out how t recoup the money stolen by both companies. I will be the first to say I'm extremely bitter. Why? I'm the spouse of an investment banker at B of A. I'm so sick of the government and the media vilifying ALL banks in their entirety and ALL bank executives. How many of you know the government strong-armed B of A into going forward with the purchase of Merrill Lynch even though, after due diligence, the bank tried to backed away from the purchase? Washington promised to infuse B of A with money to help with the huge burden the bank would take on with the purchase of Merrill Lynch. Everyone now refers to that as "bail out" money. The government also threatened B of A with the promise that if they didn't go through with the purchase should B of A need help in the future the government would not back them. Hmmm. Can you say blackmail? Also, did know the term "bonus" in Banker-Compensation-World is synonymous with "sales commission"? Bankers basically sell bank services from which the bank receives fees, interest, etc. Like most other salesmen, that commission makes up the majority of our compensation. They are not just arbitrary bonuses given out at "the firm" during the end of the year holiday party. And it's not all cash. A large portion is of it is bank stock. AIG and Merrill LynchThere are actually many good, honest, hard-working bank executives working for profitable areas in all banks. My spouse works long, hard hours and travels extensively. That work brought to the bank several hundred million dollars in fees and interest! YES! We should be getting a SWEET "bonus" this year! Or NOT. Largely because of Merrill Lynch/John Thain's extortion of roughly $4 BILLION in bonuses (given out in December instead of February... to only 700 people... and, oh yeah, juuussssst before B of A took over ML) but also because it would be unethical for the bank to be so extravagant. No one talks about that! It doesn't make good news to report about the corporations who quietly do the right thing. And it's SO much easier for the government to throw B of A under the bus with the other banks. Why would they want to admit they are responsible for the current state of B of A? Because they don't want to answer to the taxpayers about their massive blunders.

What a bunch of bull #$#$. Why don't them Exc's do a REAL hardworking job, then they will have something to complain about. I am so angry that I could hit someone, especially one of the people who took the money.

Contractually obligated to pay a bonus? Baloney, through and through. How many unions have had to strike just to retain their contractually obligated PAY CHECKS? The world hiccups, business takes a downturn, and contracts are renegotiated every day - for working class Americans. Taxpayers now own AIG. Message to Execs, and Darth Vader put it best: "I have altered the deal. Pray I do not alter it further."

""I know a whole lot of people, myself included, who depend on their bonus to live. It’s not a frill. It’s part of our compensation that we wait for, plan for, put our kids to school with. We don’t have yachts. We don’t have polo ponies. We have mortgages and child support and elderly cocker spaniels who have kidney trouble. That’s what our bonuses pay for.""

-- If you rely on a "bonus" as part of your salary, you are not living on a realistic budget. It's that simple. A bonus is an extra, meaning not included as part of salaried or hourly compensation. People forget that.

At this point it's too late to complain about AIG giving "bonuses." Where were the watchdogs when the contracts were created?

How about, for once in this country, we correct the issues BEFORE they become a problem and not as an afterthought "so it won't happen again." Does no one study their history? It will always happen again as long as no one is paying attention.

and how come we don't see anybody going to jail due to this mess? these greedy guys who caused the collapse of AIG should be put to jail for the expense they incurred from the taxpayers.
if i spilled a barrel of oil on the coast, which then caused tens of thousands to clean up, do you think i will get the same nice treatment that was given these AIG execs? losing 60 BILLION dollars is the same as 10 exxon valdez spills -- but then again, exxon valdez execs mostly got away with that mess too.