AIG bonus grab
It has been almost one month since the public became aware that U.S. bailout-recipient American International Group had distributed bonuses totaling $165 million to several of its employees. Taxpayers are still incensed while lawmakers try to figure out what to do in response.
These bonuses were handed out only months after the U.S. government rescued the beleaguered insurance company from collapse with a bailout package that began at $85 billion and soon surged to $150 billion. So far, AIG has received about $170 billion in government funds under the Troubled Asset Relief Program, also known as TARP. To top it off, the retention bonuses were given to executives in the financial products section — the birthplace of the company’s downfall.
Needless to say, taxpayers across the country are infuriated that their tax dollars are funding lavish bonuses while individuals are left to deal with the brunt of the financial crisis. Lawmakers like Iowa Senator Chuck Grassley, ranking Republican on the Senate Finance Committee, are outraged that AIG executives had the nerve to issue bonuses soon after they were rescued from bankruptcy. In a March 16 radio interview, Grassley advised AIG executives to follow the examples of Japanese corporate leaders who mismanaged their companies and do one of two things, “resign or go commit suicide.”
So what does the company have to say for itself? AIG’s chief, Edward M. Liddy, said that while the bonuses were “distasteful,” the company had a legal obligation to honor employee contracts. Speaking of contracts, in exchange for the government bailout AIG had to hand over 80 percent of its equity to the U.S. government. Most people would assume having control over 80 percent of a company would give the government the right to step in and refuse to deliver bonuses to employees who should be thanking taxpayers for their jobs. Such an assumption, however, would be incorrect.
Not to worry. The public outcry of disapproval has pushed elected officials to confront the issue. In the immediate aftermath, President Barack Obama said his administration would pursue every legal avenue to recover the bonuses given to over 400 AIG employees. But since, he has seemed to back off, asking the public not to criticize investors who are needed to buy up billions of dollars of bad mortgage securities.
And Congress, who practically demanded AIG executives’ heads on a stick, also appear to have backed down from its initial outrage. On March 19, the House of Representatives passed HR 1586, which would impose a 90 percent tax on bonuses given to employees with family incomes above $250,000 who work at AIG or any company that has received at least $5 billion in government bailout money. That bill is currently stalled in the Senate.
On April 2, the House passed another bill aimed at making sure bailed-out businesses don’t over-compensate their employees with taxpayers’ dollars. This version, however, isn’t as strong as its predecessor. It would allow the bonuses if the Treasury Department and financial regulators determine they are not unreasonable or excessive. But this bill, too, remains stalled in the Senate, where Democratic leaders say they will wait to act on any bonus legislation until Congress returns on April 20 from its two-week break.
Trying to stave off the growing public outrage, and fearing for their safety, some of the bonus recipients have agreed to return their bonuses, according to New York Attorney General Andrew Cuomo. Fifteen of the top 20 recipients from AIG’s financial products unit agreed to give back about $50 million. That sounds like a good start.
At the end of the day, should people be so surprised at the greediness AIG executives are displaying? These are the same people who spent over $440,000 on a weeklong retreat less than a week after the federal government committed $85 billion to the company’s bailout last September. How to prevent such avarice from seeping into our financial institutions in the future will certainly be a major topic for quite some time.
Category: Business
