Bonuses Are Wrong, White House Needs Stress Test Over AIG


The sign in the lobby of AIG's headquarters at the American International Building in New York City. (Photo: David Shankbone, Wikimedia Commons)

Bonuses are always substantively wrong when organizational leaders have underperformed, failing to achieve reasonable benchmarks for success while demanding sacrifice from lower-level employees through wage cuts, reduced hours and terminations.

 

Bonuses are symbolically wrong during economic bad times, communicating that executives have the only value and other employees have no value and creating greater organizational dysfunction.

 

Bonuses are part of what is systemically wrong with corporate governance, where boards and executives practice cronyism not accountability to shareholders and for the common good.

 

Bonuses are spiritually wrong when they are hidden or slipped through. When public scrutiny is missing and transparency is lacking, there is a reason for such behavior and it is never a good one. People hide when they've done wrong or don't deserve credit.

 

That brings us to the failed and flawed American International Group or AIG, which wants to disburse bonuses to its corporate executives and needs the U.S. government to bless its decision.

 

According to the Washington Post's breaking story, "The company has been pressing the federal government to bless the payments in hopes of shielding itself from renewed public outrage."

 

AIG wants to pay $2.4 million in bonuses this week to 40 senior corporate officers and more than $200 million in bonuses in March 2010.

 

Pro-bonus forces in the Obama administration and at AIG make two arguments for why bonuses must be paid. First, they claim contracts can't be broken. Second, they threaten that if bonuses are withheld then AIG employees will take jobs with other firms.

 

Before looking at these two arguments, let's remember what AIG did.

 

Remember AIG deserves a lot of blame for having wrecked the global economy with financial trickery.

 

Remember that taxpayer money bailed out AIG to the tune of $180 billion, helping no doubt to keep many of the financial tricksters handsomely compensated.

 

Remember that in March 2009, a firestorm erupted when the public and lawmakers learned that AIG was paying in excess of $165 million in bonuses to the tricksters who almost destroyed the corporation and helped to ignite a national unemployment rate heading toward 10 percent.

 

Remember that AIG lost a whopping $99 billion in 2008 and another $4.4 billion in the first quarter of 2009.

 

The first Post story noted at the end of the article that a Citigroup analyst had "warned that AIG might be worthless to shareholders if or when it ever pays back the billions it owes the U.S. government."

 

The Post quoted Joshua Shanker of Citigroup saying, "Our valuation includes a 70 percent chance that the equity at AIG is zero" and said, "AIG's stock plummeted by more than 25 percent today [Thursday]."

 

If AIG is likely to fail, then one can readily understand why its executives want to raid the corporate coffers one more time by rewarding other executives with bonuses. After all, no member of the corporate elite should sacrifice for the common good, and every undeserving corporate executive needs more unmerited compensation. After all, who deserves the taxpayer bailout more than AIG executives?

 

Now back to the arguments for bonuses. The first claim is that promises made must be promises kept. Contracts can't be broken. Does anyone believe that those contracts would be valid if AIG had gone bankrupt? No, those contracts would be worthless. The contract argument only exists because of the taxpayer bailout. Only utter arrogance and pride would compel AIG to claim now that taxpayers must keep those contracts. Only cronyism between the financial elite in the Obama administration and AIG would compel Obama officials to speak up for bonuses.

 

The second claim is that if bonuses are not paid, then AIG executives will go to other firms, meaning that AIG will not be able to fix the problem. Isn't that argument akin to the argument that bank robbers should be bank guards and drunks should run sobriety check points? Why should the nation trust those who created the financial crisis to fix it? If AIG officials think they can find other positions, best wishes.

 

What can we do?

 

If you think AIG bonuses are outrageous, then call the White House and register your opposition (Comments: 202-456-1111; or Switchboard: 202-456-1414).

 

Or call Timothy Geithner, secretary of the treasury, or Kenneth Feinberg, the department's compensation czar, who oversees compensation at firms that receive federal bailouts (Switchboard: 202-622-2000).

 

Always be civil, non-argumentative and brief.

 

Say no to AIG bonuses. Speak up for financial accountability.

 

Robert Parham is executive editor of EthicsDaily.com and executive director of its parent organization, the Baptist Center for Ethics.

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