AIG?
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PostPosted: Tue, Mar 17 2009, 8:50 am EDT    Post subject: AIG? Reply with quote

What's going on with AIG? Legally guaranteed bonus? I though bonus should be paid only if you do well and exceed set criteria; that's the bonus scheme used by my employer.

Any insight about the AIG guaranteed bonus?
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PostPosted: Tue, Mar 17 2009, 9:49 am EDT    Post subject: Re: AIG? Reply with quote

It depends. In most cases that's correct. However, there are executive agreements that mandate bonuses based on certain targets met. I know my company which is a Fortune 100 has these agreements in place with certain management. We also have producer bonuses paid at year end which are set percentages based on revenue thresholds.
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PostPosted: Tue, Mar 17 2009, 9:57 am EDT    Post subject: Re: AIG? Reply with quote

And, even though AIG didn't meet any targets, these are retention bonuses created to preserve the company's "talent". In AIG's case the worry is that the guys who made the mess may be the only ones who can unravel it, and that these employees may know enough of AIG's dirty secrets to bet against the company and cause an even bigger mess. Beyond AIG, there's also a concern that rescinding the bonuses would affect the "sanctity" of the contract and lead to other firms doing the same, which would make it tough for anyone to conduct business. It still stinks, however.
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PostPosted: Tue, Mar 17 2009, 10:44 am EDT    Post subject: Re: AIG? Reply with quote

The AIG bonuses in question are retention bonuses, which is a totally different thing than the previous posters are talking about which are performance bonuses. Retention bonuses, also sometimes referred to as “stay bonuses,” are fairly common for a company that is either being sold or in difficulty. They are certainly not unique to AIG. These bonuses are typically structured not to meet certain performance targets or be discretionary but to be payable at a certain date if the employee continues employment to that time. They are usually made (again, usually when a sale is pending or the company is in a delicate position) to avoid an exodus of employees with specific skills or in critical positions that would materially undermine operations or the value of the company.

These stay bonus contracts were made before the bail-outs when AIG realized they were about to be in for a world of hurt on derivatives and were worried they would lose the specialists who could work on selling, reinsuring, re-pricing or writing down those assets. Connecticut law allows the employees to sue if their contracts are breached and to be awarded double the value of the lost comp, and attorney fees, if they win. Given it sounds like these are black-letter law and done before the bail-out or “impairment” they probably would win. Any attempt to create a new federal law that superseded the CT law and did so retroactively would probably eventually be reversed as unconstitutional.

Don’t get me wrong, I am not defending these bonuses or employees. I think it is despicable. But its also worth noting that the Treasury Department was aware of them, going all the way back to the Bush Administrations first two bail-outs of AIG last fall. They were fully disclosed. They have known about the March 15 payment deadline for many months but were asleep at the wheel on this until the last minute when their realized the p.r. disaster it was about to unleash. They should have dealt with this before giving any of the bail-outs – they should have done like they did with the auto industry, giving a little emergency money but adding clauses that requires it be returned and withholding the bulk of the payment unless AIG could return by a certain deadline with “concessions” from its employees. This would have forced AIG to re-negotiate these stay bonus contracts with employees or tell them the company would become insolvent and they wouldn’t get them anyway. They missed the logical opportunity.

Now that they’ve already been paid and distributed, frankly it would be a huge waste of more taxpayer money to go after trying to claw them back from these people.

I prefer the more out-of-the-box ideas, like the suggestion that the Feds create a new tax that specifically taxes employees of companies receiving federal bail-out money at a rate of 100% of their bonuses. That could capture bank and auto execs too. Or if we are going to pursue legal action, skip focusing on the $165 million in stay bonuses and instead focus on the BILLIONS in previous bonuses AIG paid employees during the supposed “good times” only a couple years ago. The reality is a vast amount of those bonuses were based on the stated “profit” of the company, which was trumped-up by their own valuations of these same derivative products that are now causing billions in losses and forcing taxpayers to foot the bill. After all, Goldman Sacks, etc. did pay AIG for this insurance. The crime is that AIG clearly vastly oversold, over-valued and under reserved for these products. Their profit was inflated by taking a greater percentage of these sales as profit and not as reserve against future losses. That is effectively fraud and could provide a legal framework for recovering this far larger bonus pool. Hank Greenberg alone has earned over $165 million in bonuses over the years if you go after them this way.
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PostPosted: Tue, Mar 17 2009, 12:04 pm EDT    Post subject: Re: AIG? Reply with quote

Just to play devils advocate here. If you are an innocent employee at AIG say in their auto insurance division and stayed on predicated on this, then that employee is being penalized for doing his/her job. I'm not talking CEO, CFO or that level employee. If we're bailing out the company and it's in our interest that they maintain a viable company then these divisions which are critical and uninvolved do need to be protected. At the same time, these people will do things with the money whether it's spend it on goods or invest it. So the money is cycled back into the economy.
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PostPosted: Tue, Mar 17 2009, 3:34 pm EDT    Post subject: Re: AIG? Reply with quote

Guest wrote:
Just to play devils advocate here. If you are an innocent employee at AIG say in their auto insurance division and stayed on predicated on this, then that employee is being penalized for doing his/her job. I'm not talking CEO, CFO or that level employee. If we're bailing out the company and it's in our interest that they maintain a viable company then these divisions which are critical and uninvolved do need to be protected. At the same time, these people will do things with the money whether it's spend it on goods or invest it. So the money is cycled back into the economy.

Two responses:

1) The bonuses in question was specifically the subset of the total bonus pool for the division that sold all the products that are now drowning the company in losses. AIG actually paid even more bonuses in total.

2) Even to your broader point, that is life. The entire company would have gone into receivership by now with 100 percent of the employees laid-off, probably with no severance or vacation pay, etc. but for this government bail-out. So it is not business as usual – this is a company operating on a temporary lifeline. If they still expect bonuses, they need to find work at a healthy company, regardless of their division.

3) The banks made the same argument, about how other parts performed well so their people’s bonuses shouldn’t be impacted by the severe losses of the fixed asset group. But this isn’t how most companies work. Most companies have a single bonus pool and its size is determined by the overall performance of the entire company that year. I work for a company that has 30 different business units. We’ve had great years at mine and I’ve personally been responsible for tens-of-millions of revenue and still seen a lower bonus do to performances at completely different business unit that I had no control of. So why should banks and insurance companies be uniquely insulated from this – in fact, MANY companies have no bonus structure at all, or only a token one.
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PostPosted: Tue, Mar 17 2009, 3:35 pm EDT    Post subject: Re: AIG? Reply with quote

Sorry, I meant THREE responses...
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PostPosted: Tue, Mar 17 2009, 5:14 pm EDT    Post subject: Re: AIG? Reply with quote

Guest wrote:
2) Even to your broader point, that is life. The entire company would have gone into receivership by now with 100 percent of the employees laid-off, probably with no severance or vacation pay, etc. but for this government bail-out. So it is not business as usual – this is a company operating on a temporary lifeline. If they still expect bonuses, they need to find work at a healthy company, regardless of their division.


Just on this point. Except in this scenario the employee opted to sign an agreement saying they would stay and not leave. In return for not leaving they received compensation. If they had been laid off then they would have gone on and hopefully found employment.

We structure deals all of the time that state if the company is acquired then the employees who stay on for 6 months will receive X dollars. If they agree to sign non-competes then we will give y dollars. In other words, we're asking them to stay when it may be in their interest to leave. In return, we're compensating them for the risk involved with staying.
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PostPosted: Wed, Mar 18 2009, 8:16 am EDT    Post subject: Re: AIG? Reply with quote

Dodd and Obama were the top two recipients of campaign donations from AIG execs. This link shows how much each candidate received. Dodd and Obama each received over $100,000.

http://www.foxbusiness.com/story/markets/industries/finance/dodd-cracks-aig---time/

The Dodd amendment to the stimulus bill specified that the contracts for these specific bonuses be honored and the bonuses be paid. To me this is a direct pro quid pro that needs to be prosecuted.
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PostPosted: Wed, Mar 18 2009, 8:21 am EDT    Post subject: Re: AIG? Reply with quote

Guest wrote:
Dodd and Obama were the top two recipients of campaign donations from AIG execs. This link shows how much each candidate received. Dodd and Obama each received over $100,000.

http://www.foxbusiness.com/story/markets/industries/finance/dodd-cracks-aig---time/

The Dodd amendment to the stimulus bill specified that the contracts for these specific bonuses be honored and the bonuses be paid. To me this is a direct pro quid pro that needs to be prosecuted.


Then, there should be no surprise that AIG honors the bonuses. The stimulus bill gave them the go. Why the outrage with AIG?
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PostPosted: Wed, Mar 18 2009, 11:02 am EDT    Post subject: Re: AIG? Reply with quote

My outrage is with congress and Obama, not AIG
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PostPosted: Wed, Mar 18 2009, 11:06 am EDT    Post subject: Re: AIG? Reply with quote

Guest wrote:
My outrage is with congress and Obama, not AIG


But congress and Obama are outraged by AIG! This makes no sense. Aren't they the folks who signed the stimulus bill?

There must be something missing here.
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PostPosted: Wed, Mar 18 2009, 12:09 pm EDT    Post subject: Re: AIG? Reply with quote

Please let me be very precise. I believe that AIG acted responsibly in signing retention bonus agreements. They were faced with a very big problem and retention bonuses are designed to induce people that who know they will be laid off in the future to stay and help the company work through these problems and then leave.

I believe that the bailout by congress was not responsible but given the fact they did it, it would have been immoral to simultaneously bail out the company and chop off the heads of those people that were working for $1/year plus a bonus. I say this as a person that individually owns AIG stock.

My outrage at congress is because of their feigned outrage and Holier than thou posturing over the bonus payments. Can you imagine these jokers controlling your access to health care? God help you if they do and you are found writing things like this post. When you have guys like Dodd, Obama, Schumer and Franks making threats to punish people for doing what they voted for or signed you have to say it is outrageous. Bring on term limits.
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PostPosted: Wed, Mar 18 2009, 12:26 pm EDT    Post subject: Re: AIG? Reply with quote

The politicians all know Americans have a short memory and not enough of them are smart enough to see this as it is. So they approved the bail out at the time and defended the bonuses. Now, people are upset and they argue against them because it's politically expediante. No one holds them accountable and they make excellent sound bites. It's the same politicans Franks and Dodd that did not want Fannie Mae oversight and then after the mortgage collapse demanded it and said no one was watching. Franks is one of the worst grand standing policticans of all time.
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PostPosted: Wed, Mar 18 2009, 3:21 pm EDT    Post subject: Re: AIG? Reply with quote

Guest wrote:
I believe that the bailout by congress was not responsible but given the fact they did it, it would have been immoral to simultaneously bail out the company and chop off the heads of those people that were working for $1/year plus a bonus. I say this as a person that individually owns AIG stock.


Don't make too much of the $1/year salaries they got -- that's because the guaranteed bonuses were already equaly to 100% of their 2007 total comp, so the salaries were reduced because the bonus was already covering them. And while I agree stay bonuses are not unusual, it is highly generous / unusual to make them guaranteed to match the previous year's total comp for each individual, inclusive of their previous year's salary + bonuses when much of that had been performance based tied to total sales. They knew by that point that the they were going to have losses rather than anything removely like the previous year's sales total. I've seen many retention bonuses over the years but non that generous across the board.
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PostPosted: Thu, Mar 19 2009, 11:06 am EDT    Post subject: Re: AIG? (Dodd admits to role in AIG loophole) Reply with quote

Dodd admits to role in AIG loophole

(CNN) -- After denying having anything to do with crafting language in the stimulus bill that allowed bailed-out insurance giant American International Group to keep its bonuses, Sen. Christopher Dodd admitted that he and the Treasury Department were responsible for the loophole.

Dodd, chairman of the Senate Banking Committee, acknowledged his role in the change after a Treasury Department official told CNN the administration pushed for the language.

Both Dodd and the official, who asked not to be named, said it was because administration officials were afraid the government would face lawsuits if bonus contracts were breached.

The White House did not immediately respond to CNN's request for comment.

Congress last month passed a bill that President Obama signed into law, allowing AIG to keep its bonuses. For days, no one would say who was responsible for the loophole that let that happen.

The $787 billion stimulus bill included a measure from Dodd to limit executive bonuses strictly. But slipped inside at the last minute was an exemption for bonuses agreed to "on or before February 11, 2009." That allowed AIG to go ahead with its controversial bonuses.

On Tuesday, Dodd denied that he had anything to do with adding the language.

"When I left the Senate, it was not in there. So when I wrote the language, there was no such language like that," he said then.

But, saying his previous comments had been misconstrued, Dodd said Wednesday that he added the exemption after getting pressure from the Treasury Department.

"I agreed reluctantly," Dodd said. "I was changing the amendment because others were insistent."

Dodd, a Connecticut Democrat, told CNN's Dana Bash and Wolf Blitzer that Obama officials pushed for the language to an amendment designed to limit bonuses and "golden parachutes" at those companies.
...
http://www.cnn.com/2009/POLITICS/03/19/aig.bonuses.congress/index.html
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