OT: AIG To Distribute $165 Million in Bonuses

[Anonymous-0]

I found this news item a few minutes ago,and I'm wondering just how much money these guys have to lose to earn those bonuses. When I was on a pay plan with a bonus package, it was an incentive based on PROFITS...If we didn't make a profit, I didn't get a bonus. Apparently I missed a chapter in my studies on how capitalism is supposed to work; I was taught it revolved around something called the "profit motive."
*************************************************

Insurance giant AIG to pay $165 million in bonuses

By MARTIN CRUTSINGER, AP Economics Writer
21 mins ago

WASHINGTON – American International Group is giving its executives tens of millions of dollars in new bonuses even though it received a taxpayer bailout of more than $170 billion dollars.

AIG is paying out the executive bonuses to meet a Sunday deadline, but the troubled insurance giant has agreed to administration requests to restrain future payments.

The Treasury Department determined that the government did not have the legal authority to block the current payments by the company. AIG declared earlier this month that it had suffered a loss of $61.7 billion for the fourth quarter of last year, the largest corporate loss in history.

Treasury Secretary Timothy Geithner has asked that the company scale back future bonus payments where legally possible, an administration official said Saturday.

This official, who spoke on condition of anonymity because of the sensitivity of the issue, said that Geithner had called AIG Chairman Edward Liddy on Wednesday to demand that Liddy renegotiate AIG's current bonus structure.

Geithner termed the current bonus structure unacceptable in view of the billions of dollars of taxpayer support the company is receiving, this official said.

In a letter to Geithner dated Saturday, Liddy informed Treasury that outside lawyers had informed the company that AIG had contractual obligations to make the bonus payments and could face lawsuits if it did not do so.

Liddy said in his letter that "quite frankly, AIG's hands are tied" although he said that in light of the company's current situation he found it "distasteful and difficult" to recommend going forward with the payments.

Liddy said the company had entered into the bonus agreements in early 2008 before AIG got into severe financial straits and was forced to obtain a government bailout last fall.

The large bulk of the payments at issue cover AIG Financial Products, the unit of the company that sold credit default swaps, the risky contracts that caused massive losses for the insurer.

A white paper prepared by the company says that AIG is contractually obligated to pay a total of about $165 million of previously awarded "retention pay" to employees in this unit by Sunday, March 15. The document says that another $55 million in retention pay has already been distributed to about 400 AIG Financial Products employees.

The company says in the paper it will work to reduce the amounts paid for 2009 and believes it can trim those payments by at least 30 percent.

Bonus programs at financial companies have come under harsh scrutiny after the government began loaning them billions of dollars to keep the institutions afloat. AIG is the largest recipient of government support in the current financial crisis.

AIG also pledged to Geithner that it would also restructure $9.6 million in bonuses scheduled to go a group that covers the top 50 executives. Liddy and six other executives have agreed to forgo bonuses.

The group of top executives getting bonuses will receive half of the $9.6 million now, with the average payment around $112,000.

This group will get another 25 percent on July 14 and the final 25 percent on September 15. But these payments will be contingent on the AIG board determining that the company is meeting the goals the government has set for dealing with the company's financial troubles.

The external_link administration has vowed to put in place reforms in the $700 billion financial rescue program in an effort to deal with growing public anger over how the program was operated during the Bush administration.

That anger has focused in part on payouts of millions of dollars in bonuses by financial firms getting taxpayer support.

In his letter, Liddy told Geithner, "We believe there will be considerably greater flexibility to reduce contractual payments in respect of 2009 and AIG intends to use its best efforts to do so."

But he also told Geithner that he felt it could be harmful to the company if the government continued to press for reductions in executive compensation.

"We cannot attract and retain the best and brightest talent to lead and staff the AIG businesses, which are now being operated principally on behalf of the American taxpayers — if employees believe their compensation is subject to continued and arbitrary adjustment by the U.S. Treasury," Liddy said.

Copyright © 2009 The Associated Press. All rights reserved.
*************************************************
If it takes "the best and brightest talent" to LOSE that kind of money...then every business course I ever took is WRONG.

 

[Anonymous-0]

All depends on your standing in the company, if you are in the upper echelon you write your own rules particularly if a free rein is given by the so called Government Administrators..Where is the incentive to perform when bonuses [big ones] are paid for failure, love one of those contracts.

 

[Don c]

Do you know why they are giving these and a that lot won't be said about it. AIG is in charge of allll the congressmen and senators investments, pensions and alll of there money, this is why you won't see or hear any bad things said about about them from our leaders. To many of our leaders would be bankrupt if it went under.

 

[Gun guru]

It does make anyone sick. Especially for poor performance.

Any decent company----that is run with ethical standards wouldnt payout bonuses.

Where my wife works the CEO, (large company) stormed into the payroll department cause his car allowance bonus was not with his regular paycheck. (Pitched a fit) (yes the company is losing money now) Then the guy actually ran to his office to get a copy of his "contract" with all perks,bonuses listed. He got his car allowance.

Moral of the story: When you get high enough up in the company the rosy glasses prevent you from thinking clearly and common sense is lost.

 

[HENRY E NC]

I don't know much about AIG but I have a son who is VP ops in one of their many companies and he is very upset because his company made great profits last year ( i believe he is in business insurance)and so did many of the companies of AIG but the biggest portion of AIG lost tons of money that drags all the rest down. Can you really punish those that did good while the others that performed poorly sit on the hands? Henry

 

[OH Boy]

Lets say we all work in an auto plant. You run the pickup truck line and another guy runs the 4 door sedan line. The pickup truck line is fabulously successful and sells out every unit you can build. The 4 door sedan line has all kinda problems, shut down half the time, and cant sell much of what they do get out the door.

Between the two lines the company's bottom line is a big loss. Do you want YOUR bonus and compensation limited/restricted because of the problems the company has on the 4 door sedan line, which you are not in charge of?

Thats whats going on at AIG, they sell a LOT of different financial and insurance products and many of them are VERY profitable. Those producers need to be compensated for their accomplishments. The bonuses were part of their compensation agreement. Instead of just paying them $XXXXXX dollars up front, part of it is held back and they only get it if they produce a certain result.

 

[tlak]

I figure if they can pay somebody several million dollars a year in bonuses, he could get his regular salary and I could have cheaper insurance.
All the insurances I have are required and the insurances should be non-profit with the customers as the excess recipients.
When the insurances go belly up because of a major disaster the tax payer pays, they don't make all big bonus receivers cough up their bonus.

 

[yak651]

Where I work it's based on the entire company. Yeah it sucks if one area is down and you don't get a bonus, but it's based on the success of the entire company. Maybe it's not fair, but that's how it is and I don't argue with it because it's right. Do all the employees make the same wage? Is that fair also??

 

[jeremy in NE]

It was right of them to diversify their business, but it is still one company. Therefore, NO bonuses paid until they are posting profits.

 

[Billy NY]

Can't say that I know any of the details, but plain and simple, if these companies have been bailed out with taxpayer dollars, and that same money is bonused to these pompous executives, someone needs a cold slap across the face, both our government and the intended recipients of the bonus's........

 

[garytomaszewski]

OH boy,
If you read the entire story, most if not all the bonus money is going to the division that lost the $170 million in credit swaps.

 

[LAA]

A textbook example of why AIG and all the other incompetently run companies should have been left to go belly up instead of receiving tax payer bail outs. The financial and insurance companies remaining that were managed with restraint and foresight would have already taken over the viable portions of these businesses and restored confidence in the system.

 

[Anonymous-0]

Now you've wrecked my day, probably for the rest of the year.

 

[tlak]

I guess if Bush's emergency "We need it now with no over-site", would have been more like a receivership (insert proper legal term) instead of a freebie give away, they couldn't do that.

 

[Anonymous-0]

somebody needs a bullet between the eyes.

 

[cornfarmer]

"The large bulk of the payments at issue cover AIG Financial Products, the unit of the company that sold credit default swaps, the risky contracts that caused massive losses for the insurer."

Based on what I heard on the news, the bonuses are for meeting or exceeding sales quotas. Apparently, the idiots in charge based the bonus structure on sales, without regard to profitability. Kind of like a car dealer giving it's salesmen bonuses for every car they sold, even if they sold a car for a fraction of what it cost the dealership. It is a perverse incentive that values sales over profitability. It practically guarantees failure. And if they think these people are the "best and the brightest", they are certainly not qualified to recieve my tax money.

 

[LAA]

If the federal goverment and all politicians would but out and restrict themselves to the duties/power allotted by the constitution then AIG would not be doing any of this on tax payer dollars -- every hog of both parties in Washington DC has slopped at all these corporate troughs for years, including Zerobammy.

 

[waltdavies]

They are not Bonuses, they are contractual payments for selling Ins. They are obligated to pay to the workers. I heard That Idiot on TV say it was all Bushes fault as through he signed all the contracts.
Walt

 

[Anonymous-0]

Ya Buzzman you have it right, make a profit and get a bonus. Nowadays go ahead and fail and well throw money at you! Look at all the mortgage bailouts, dont pay your mortage because you over bought, well help you. Any one eles who pays on time, what do we get? NOTHING. So the way I see it there rewarding the people who fail, and not doing anything for the people who are doing what they are supposed to do. How about some tax cuts for us. Makes me sick!
He$$ maybe I should default on my mortage and let the poor working stiff like us pay it for me. Well I have to much pride to be a looser who cant handle my affairs, and have the Goverment bail me out. No wonder were in the mess were in. Around here dummies bought houses that were way over priced, now they owe more than the house is worth. I laugh about it. Who needs a $495,000 house on .3 of a acre. Ha Ha Ha Ha,, Sorry for venting j

 

[big fred]

Well, the feds keep giving 'em money and saying that AIG is too big to fail. So the feds have effectively told them that no matter what they do, they can count on more and more taxpayer money. What incentive do they have to change their ways? The real problem here is the government, as I see it.

 

[Jiles]

Sad thing is---they will probably get away with their plan!
Even sadder and more serious is the fact that these giant corporations have individuals that are smarter then our law makers.
One reason being the disagreement of the two parties over almost EVERYTHING.
If in dought, look what other corporations have done in the recent past!

 

[Anonymous-0]

Its these type of stories that make me want to quit reading the paper.

 

[Mike M]

DON; You hit the nail on the head !

And so far you are the only one who brought it up ! I have heard that before and it is the only explanation that makes any sense. They are going to protect theirselves first.

 

[Mike (WA)]

Much as I hate to see this money paid, there's probably not much that can be done about it. As I understand it, its not so much a "bonus" as it is commissions for selling insurance. Most of it was for selling "credit default swaps", which is the scheme Wall Street came up with to "protect" itself when investing in packages of loans- its "insurance" against those loans failing. Like any other insurance product, you reward the sales people for selling it, without regard to how that particular insurance contract works out. They don't wait to see if your life insurance policy panned out for them, or whether you died too early for it to be profitable, before paying the salesman his commission.
Credit Default Swaps

 

[Mike (WA)]

For those of you who read that article on credit default swaps, be sure and read the comments at the bottom- particularly the first one. As crazy as insuring against loan losses (without limits and without oversight) might seem, there was an even more incredible dimension to all this. Read it and weep.

 

[Anonymous-0]

The main reason Aig laid an egg is that the founder, Greenburg, or whatever his name was, the guy who built up the company was a nnalert, targeted by then NY atty General elliot(love potion #9) sthpithser, who couldn't have that! No charges were ever brought, just threatened, that's the way you libs work, they cowed the board of directors into replacing him. Within 3 years of his replacement, the company was on the skids, with a good party nnalert at the helm. I say they should have let the ship sink, so I'm one ahead of you, tlak, I'm not in favor of throwing good money after bad.