AIG, Bonuses, and the Auto Workers

I’m pretty sure that those traders at AIG who are due for massive taxpayer paid bonuses would be insulted being compared to members of the UAW, but I’d like to understand exactly how they are different.   Both work for industries/companies in financial difficulty.  Both companies got help from the taxpayers.  Both the traders and the auto workers had valid contracts.  So those are some ways they are the same.  How are they different?  Only the UAW is being asked to renegotiate their valid contract, to make sacrifices for the good of the country. 

In this morning’s New York Times there is a defense of paying the AIG bonuses by Andrew Ross Sorkin.  Sorkin writes

That may strike many people as a bit of convenient legalese, but maybe there is something to it. If you think this economy is a mess now, imagine what it would look like if the business community started to worry that the government would start abrogating contracts left and right.

As much as we might want to void those A.I.G. pay contracts, Pearl Meyer, a compensation consultant at Steven Hall & Partners, says it would put American business on a worse slippery slope than it already is. Business agreements of other companies that have taken taxpayer money might fall into question. Even companies that have not turned to Washington might seize the opportunity to break inconvenient contracts.

If government officials were to break the contracts, they would be “breaking a bond,” Ms. Meyer says. “They are raising a whole new question about the trust and commitment organizations have to their employees.” (The auto industry unions are facing a similar issue — but the big difference is that there is a negotiation; no one is unilaterally tearing up contracts.)

And there we have it in the last sentence.  The UAW is negotiating.  So what’s keeping AIG from negotiating with Congress.  With Senator Feingold, Senator Bond, Congressman Frank, and Secretary Geithner.    Senator Russ Feingold wrote to Geithner

I am deeply troubled by reports that the American International Group intends to pay about $165 million in bonuses to its executives. As you know, the federal government has provided AIG with $170 billion in taxpayer money and currently owns 80 percent of the company. I share your outrage that a company which has been bailed out by the taxpayers for its mistakes would turn around and pay its executives such a staggering sum of money. 

Reports suggest that AIG’s chairman claims AIG is legally obligated to pay some or all of these bonuses. I write to ask why any bonuses would be legally required, given the company’s abysmal performance. In addition, I would like to know what legal options have been explored for canceling the bonuses or recouping the money from the recipients, and in particular whether the administration has considered holding AIG executives accountable in court for any breaches of their fiduciary duties to the shareholders

To me the most troubling part of all this is calling what these AIG employees are “legally obligated” to receive a bonus.  I think most people would agree with me and Senator Feingold that a bonus is something one gets for outstanding performance.  As a taxpayer/shareholder in AIG I want to know what the performance level – as judged from some outside auditor- of each person to receive a bonus is before I hand over the money. 

In Politico, Roger Simon  writes what I think many of us wish we had written first

The only real difference between Bernie Madoff and the management of AIG is that when Bernie Madoff got caught, he pleaded guilty. When AIG got caught, it asked the government for $170 billion.

And it got it. Now the American International Group is going to pay $165 million to its executives as a reward for the fine job they did in duping everybody.

The last word goes to Republican Senator Kit Bond

It is outrageous and unacceptable for failed Wall Street executives to receive a bonus after the American taxpayer was forced to bail them out. Policymakers should quit debating how to lower pay for some of these executives who got us into this mess.

Capping pay or taking away corporate jets isn’t enough. Before these companies get any more tax dollars, the failed senior executives and board of directors need to be fired 

The President is angry.  Democrats in Congress are angry.  Even some Republicans are angry.  The UAW is making concessions.  Time for the Wall Street moguls to do the same.

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