Not on the Bonus Burning Bandwagon

Economy, US Economy, US Politics

Have you heard about the bonuses paid to the losers at AIG?  OK, that’s a joke because everyone has heard about how “the very employees responsible for running the company into the ground” are making off with millions in tax payer dollars as Senator Mark Warner wrote in a letter to the AIG CEO Edward Liddy.  Now I will never receive a seven figure bonus and I can’t figure out why a company would ever agree to pay one, but with that being said, I’m just not on the Bonus Bashing bandwagon yet.  It’s not that I think AIG is great.  It’s not that I’m especially sympathetic with the downward spiral that the formally high riding AIG folks are on.  The real reason that I can’t yet bring myself to go looking for my torch and pitchfork is that we really don’t know squat about these bonuses… and neither do the congressmen building ever higher soap boxes from which to denounce them.  What we don’t know so far:  who got the bonuses, why they got them, what were the criteria for receiving them.  What we do know: $165 million in bounuses were paid and a total of close to $1 billion is slated to be paid to around 4,600 top managers in 2009.  So do all our congressmen know what they are talking about?

I heard one congressman saying something to the effect of “how do any of these people deserve performance bonuses when their company is crashing?”  Let me say again that I don’t understand million dollar bonuses, but that said, I think it is perfectly reasonable that bad companies can have great employees.  Should the top salesman at the local GM dealership give up his bonus because GM is doing poorly?  What if GM accepts government money?  What if he sells a crappy car?  My thought is that if he was working to an incentive plan and he achieved his end of the deal, he should get his check.  Many employees receive some portion on their pay as variable compensation.  Every employee at the company where I work is on a bonus plan.  We don’t get millions, but everyone has the potential to get up to 10% of their annual pay based on performance.  For more senior employees the percentage is higher.  If I meet my objectives and targets, can the government take that money away?  Personally, I don’t consider this a “bonus”, I consider it pay.  How about that guy, Douglas Poling,  who received the biggest bonus: $6.4 million?  Turns out he was reponsible for trying to clean up the mess and his work resulted in AIG recouping big dollars, dollars that we taxpayers don’t have to pay.

Gerry Pasciucco, a former vice chairman of Morgan Stanley who was brought in by Mr. Liddy in November to wind down the financial products unit, said Mr. Poling had sold off roughly 80 percent of the unit’s assets. Mr. Pasciucco said the money from the sales would go to the government, which has handed more than $170 billion in bailout money to A.I.G. in the last six months.

“He’s done an outstanding job in winding down his investment books,” Mr. Pasciucco said. “He did it at the right time, and we’ve made money. We would be losing money today if we waited to sell some of these assets.”

By the way, our boy Doug gave the bonus back.

We’ve also read about “retention bonuses paid to people who have left the company.”  How does that make sense?  OK, from far away, I can question the wisdom of offering these plans, but let’s understand that these payments are made after the service term to employees that stayed last year.  For whatever reason, AIG offered to make a payment to employees who stayed in 2008.  When that period expired, they were entitled to the payment even if they left the company.  AIG was not government supported at the time, but was feeling heat.  Maybe they felt they needed to keep top performers.  I don’t know why they made these offers.  You don’t either.  I probably wouldn’t have offered such plans, but if I was offered one and accepted it in good faith to stay on a sinking ship, I’d consider my end of the deal complete.  Was management pulling a fast one?  Let’s go find out, but at least let’s hold our fire until we know the answer.

What has all the rhetoric achieved so far?  We’ve got dubious legislation attacking people’s pay passing in Congress without debate, security memos at AIG warning employees to beware of people seeking to do them harm and employees being harassed and attacked at their homes.  Does anyone besides me think we need to get the full story before burning people at the stake?

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  1. nimh  •  Mar 20, 2009 @3:29 pm

    it is perfectly reasonable that bad companies can have great employees.

    Do we have any indication, though, that it’s the “great employees” who got the bonuses? Moreover, do we have any rational reason whatsoever to expect that it is?

    AIG – and many of the other bastions of arrogant folly in high finance – have shown a tremendous capacity for rewarding grossly misperforming top guys with gross bonuses. I accept your argument that hey, we just don’t know for sure specifically how it worked out in this case; but is there any reason to think that this time, it might suddenly just have been hard-working men of virtue, so to say, who got the bonuses?

    Moreover, you say that you don’t understand million dollar bonuses. Well, I dont either, that’s for sure. And I definitely dont understand million dollar bonuses being paid out to employees of a company making such gargantuan losses, it needed the taxpayer to cough up billions of dollars to save it. I’m sorry, at that point it doesn’t even matter whether the individuals in question were hard, deserving workers or fat cat bozos – that’s just not on. Period.

    Douglas Poling is, according to that NYT story, indeed a good man – good for him. But, as you note, he did already give his bonus back. The men and women who held on to theirs, and still do even now, are apparently no Douglas Polings.

    That whole sob story in the NYT about those poor AIG millionaires who were getting unpleasant remarks from people coming to see their houses and the like, to be honest, infuriated me. Here you have a manager class, not just at AIG but throughout the sector, whose incomes skyrocketed through the years. Tangentially related statistic: in 1994, the median CEO earned 91 times as much as the average employee; just a decade later, he earned 194 times the average employee. They saw their income and assets multiplied by x – and not just did this happen without any particular increase in effort, as part of a pattern in which the wealthiest basically just kept handing each other out ever greater amounts of money – no, it turns out they actually steered the economy into an acute crisis, by recklessly gambling with investors’ money. All this time, they were celebrated by politicians (from Clinton to Bush) and the media alike as some kind of heroes of our time, while the financial press and media led the cheerleading on their every step.

    As a result, millions of people are now losing their jobs and facing an immediate threat to their very livelihood. As in: losing their homes, even not having enough money to buy food. And we are supposed to feel sorry about these enormously wealthy people who have gotten out of the whole mess with farewell bonuses and golden parachutes, because rude people are after them and they’ve had to hire security to guard their villas against the angry mob?

    I’m sorry for getting hyperbolic here (though not even by much), but good Lord almighty, the NYT sometimes really has its head stuck up the Manhattan a*se, if you pardon my French. Cry me a river. Count me in with the pitchfork-wielding mob — this all makes me long for Eugene Debs rather than Barack Obama.

  2. engineer  •  Mar 20, 2009 @8:19 pm

    But we are demonizing people without any information. There are certainly some who deserve all of our scorn, but at this point, we know virtually nothing about these bonuses. The forces of the mob have been unleashed without a defined target and they are going every direction. Now we’ve got the precedent of Congress going after a specific class of citizen without any logic other than they are evil. I’ve never cared for the philosophy of “kill them all and let God sort them out,” but that is what we are doing.

  3. Robert Gentel  •  Mar 21, 2009 @6:50 am

    I agree with engineer on this, and don’t really feel strongly one way or the other about the bonuses, but feel very wary about the mob mentality and the efforts to address the bonuses through taxation.

  4. engineer  •  Mar 21, 2009 @7:05 am

    I just think it is amazing how quick people are to judge with virtually no information. Every public figure says “I haven’t seen the contracts, but…” and then goes on to say these folks are henchmen of the Anti-Christ. Every now and then I will see someone try to put things in perspective only to be shouted down.

  5. engineer  •  Apr 16, 2009 @10:38 am

    No, I wish.

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