The public’s outrage over the AIG bonuses is so strong, you can almost taste it.
As the facts unfolded this past week and a half, one thing became increasingly obvious: AIG executives and the American public have such differing perceptions of AIG’s situation – it’s as if we are are living in parallel universes with separate realities.
AIG appears to feel it’s business as usual, with barely a few pesky little restrictions. The American taxpayers, on the other hand, have a totally different view. They think AIG is a failed company that is undergoing a kind of specialized takeover in which they should have some say — and with good reason.
According to Fed Chairman Ben Bernanke, AIG operated as a giant hedge fund. It engaged in risky activities on a scale so massive, it’s in a class by itself. It’s still in business only due to the largess of the American taxpayer ponying up $85 Billion (correction – the amount is now $170 Billion). We couldn’t afford to let it officially go under, or it would have taken down the entire financial system like a stack of dominos.
Still, AIG is a failed business.
Executives in failed companies don’t get rewarded. The employees at Enron, Worldcom and other failed companies didn’t.
Let’s be very clear on what the public’s outrage is about — and not about. The American public is not outraged with the majority of hard-working employees at AIG. No, this outrage is directed toward a relative handful of people. The outrage stems from the take-your-breath-away size of the bonuses – and because so much money is being divvied up in the hands of a few.
It feels like these bonuses are a replay of the same old story of greed that got us into this economic mess in the first place. A small number of people are lured by the desire for big money into taking big risks — putting everyone around them at risk. Others in the organization, from the Board of Directors on down, enable this risky behavior. When will these people ever learn?
Instead, the Board should have exercised independent judgment. It should have asked “is this the right compensation structure for a failed company that nearly brought down the world economy single-handedly?”
Also, as someone who’s written numerous compensation plans over the years, I’ve never heard of retention plans that paid so handsomely. Maybe you offer an extra 20-25% of regular compensation to stick around — not millions. Nor ones where the people get paid early. These sound more like the typical year-end Wall Street bonus plans — you know, “business as usual.”
Barack Obama, the President of the United States and Leader of the Free World, makes $400,000 annually. And look at the responsibility heaped on his shoulders. And yet we’re to believe that someone with narrower responsibilities deserves $6.4 Million of taxpayer money? Something is wrong with that picture.
So what do we do about these bonuses?
I am not in favor of taxing these bonuses at 90%, like the measure the House of Representatives passed last week.
On the other hand, I also do not buy into dire predictions that clipping AIG’s wings somehow spells doom to capitalism.
We may well be inching closer and closer to socialism — but it’s not because of the AIG bonuses or because we’re being forced to do the job the AIG Board of Directors and the U.S. Treasury Secretary should have done in the first place. AIG’s bonuses are just a bad situation all the way around, with no good solutions.
But unwind them — seek the money back – is what we should do.
In the end, unwinding the AIG bonuses would be a proper exercise in capitalism. In capitalism, executives should not get rewarded for their company’s failure.