Sunday, March 15, 2009

No Bonus AIG. Come and Sue Us for It

The outrage ongoing on about the AIG's contractual bonus payments to its executives made its rounds on the Sunday morning news programs and is the subject of many twitter chatter.  Here's a typical representative comment:
where would the bonus monies come from (obligated by contract) if $AIG had met its maker like it would have ex-taxpayer money?
If AIG did go into bankruptcy, they'd get cents on the dollar.

One rationale for these payments is that they are for retention purposes. But these are the same people with the poor judgement that got them in to their mess in the first place. Why retain such talent?

Just because AIG legally owes its executives the money, doesnt mean it needs to be paid immediately or that they need to be paid before other critical needs.  Namely how it will use the governement bailout money.  This includes what monies AIG has paid foreign counterparties. The point here is that no one can be made whole, so how will the haircuts and losses be distributed among counterparties, AIG, shareholders, and yes its agents: management executives and employees.

So here's a solution: we're a nation of laws and adjudication.  Delay these bonuses. Let affected executives sue for their money if they need it anytime this decade. In this way AIG scores a badly needed PR win in taking its bad calls and responsibilities seriously and it delays in the short term government money going to exceutives as bonuses for their 'accomplishments'.

The judicial system is a fine place to allow these executives to make their case for why they need this payment now, why they should treat AIG as if it were not already in bankruptcy, and what performance goals were met to merit such bonuses in the first place.  We still uphold the rule of law and the power of contracts - we're just, per contract, allowing other processes (like adjudication) to take priority.

1 comment:

Justin said...

Don't know if I totally agree here. Yes, it is horrible, but does AIG really need more lawsuits --- it's probably cheaper to pay than to litigate. The government has decided AIG will exist, so in some ways AIG has to go through with prior contracts, as smelly as they might be. It still amazes me they ever got into this situation, though.

I should mention I'm holding a good deal of AIG at an average of about $1.80 so I have some incentive to see them survive :)