AIG Bonus Fiasco

For the past week I have been swamped with reports of outrage over the AIG bonuses.  Now, the government is actually debating targeting private citizens with a plan to tax the payments at 90% which has already cleared the House of Representatives.  Unfortunately, the public's outrage has been cultivated through a campaign of misinformation and outright lies.

Before you can analyze the bonuses, you must understand why they were paid.  The payments in question were retention bonuses, meaning that they were payments to individuals who had already been laid off by the company in order to keep them at the company until the date of their official termination.  As Christina Pretto, spokesperson for AIG stated:

"As part of restructuring the company, we will ultimately eliminate jobs that are, at the moment, critical to maintaining ongoing operations and winding down certain businesses.  To have one of these positions obviously implies an uncertain future, and creates an incentive to leave the company. To retain such mission-critical people, we are making retention payments to them."

In addition, all of the bonuses that were paid were contractually obligated. This is an important detail because such payments were exempted from the limits on executive pay within companies receiving bailout funding.  Specifically, the American Recovery and Reinvestment Act (herein ARRA) states:

"The prohibition required under clause (i) shall not be construed to prohibit any bonus payment required to be paid pursuant to a written employment contract executed on or before February 11, 2009, as such valid employment contracts are determined by the Secretary or the designee of the Secretary."

Obama has feigned shock over the bonus payments claiming he was "stunned" to hear about the $165 M in payments, and assuring the American populace that "we're going to do everything we can to see if we can get these bonuses back" during an appearance on The Tonight Show with Jay Leno.  Of course, he failed to mention that the provision exempting these bonuses was added to the American Recovery and Reinvestment Act at the request of the Obama administration.  According to Senate Banking Committee Chairman Christopher Dodd  (D. CT), "The idea came from the administration," after the retroactive nature of the proposed legislation raised questions about its constitutionality.

Given that Obama's administration requested the provision, perhaps the President was merely surprised by the size of the payments.  This is unlikely though as AIG's plans were made public last November when the company filed an SEC report detailing more than $469 M in planned "retention payments."  Additionally, the administration confirmed Obama was again informed of the bonus payments the day before they were made though he did not express any outrage until after the bonuses were publicized by AIG the following week.

If the AIG bonuses are such a catastrophe, then why was Obama in such a rush to bail out the company.  Furthermore, how can we allow Obama and the members of Congress who voted for the ARRA to pretend that they were bystanders when they drafted the legislation that enabled the company to have the capital necessary to make the payments, and made sure to include a provision exempting the retention payments from federal regulation.  Finally, if we truly want AIG to recover, which should be a given if the American people now own an 70-80% share of the company, then why would we attempt to deprive the company of the employees it needs to bring about the necessary restructuring?

Sources:

American Recovery and Reinvestment Act of 2009.  Full text courtesy of http://readthestimulus.org

"AIG Retention Bonuses Going to Employees it Plans to Terminate."  Politifact.com.  21 March 2009.  <http://tinyurl.com/djc5ds>

Davis, Julie Hirschfeld.  "Obama, Congress Knew About AIG Bonuses for Months.  The Associated Press.  18 March 2009.  21 March 2009.  <http://tinyurl.com/dflmlu>

Ohlemacher, Stephen.  "House Passes Bill Taxing AIG and Other Bonuses."  The Associated Press.  19 March 2009.  21 March 2009.  <http://tinyurl.com/dnd3as>

The Tonight Show Season 17 Episode 3731

Wilson, Scott.  Obama Knew About AIG Bonuses Day Before They Were Paid.  17 March 2009.  21 March 2009.  <http://tinyurl.com/dy7hjy>