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AIG: When is a Contract Not a Contract?

Mar 18 2009

AIG (hold your nose) committed to pay a total of $450 million in retention incentives to hundreds of employees in its Financial Products unit that sold the credit default swaps that brought the firm to the brink of collapse. Now a public firestorm that followed disclosure of those pay arrangements threatens to torpedo the Obama administration's honeymoon - not to mention any further efforts to extend government aid to any financial institution.

In response, the administration and various lawmakers are separately devising tactics to claw back some or all of those payments, and ban or drastically reduce future retention pay or other awards to AIG employees.

Who (if anyone) dropped the ball here? The Bush Treasury Department and Federal Reserve, when undertaking the initial bailout of AIG last September? The Obama Treasury Department, when approving the latest of AIG's four bailouts early this month? The Congress, for not stepping in sooner? AIG's regulators, from state insurance commissioners to the Fed to the Securities and Exchange Commission?

Or, is it possible that no one dropped the ball – that the best way of unwinding AIG's troubled derivatives business is to keep in place many of the pros in the trenches who assembled those deals in the first place?

Finally, will an actual clawback of contractually agreed compensation that's been paid or is slated to be paid to more than a handful of top AIG executives (such as via the 98 percent tax surcharge Congress is mulling), send a signal that anyone with real chops in this industry would be stupid to go work for, not just AIG, but any TARP institution that's subject to politicians' whims about whether any particular employee's compensation agreement is "deserved"?

Comments (7)

"Congress had the chance to do something in the 1600 page abortion of a spending bill, and Chris Dodd took it out and replaced it with a useless attempt to control Executive Compensation. Now they are bitching about it."

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Comments (7)

  • Congress had the chance to do something in the 1600 page abortion of a spending bill, and Chris Dodd took it out and replaced it with a useless attempt to control Executive Compensation.
    Now they are bitching about it. 
    I say honor the contracts.  How much more are we Americans expected to accept from this bone headed Democratic Party controlled Congress?  Shouls we allow then to just break contracts now?  BS.

    Gene 18 Mar 2009

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  • The real story here is Washington DC...they don't know what they are doing.  In September they dropped the ball when they froze when the market needed action - impossible to measure the damage.  In February the stimulas bill was , in the words of Sen McCaskill, steeped with "items belonging in an Appropriations Bill, but we have been on such a diet, we need to do it here".  A retention bonus measures the success as well as staying on.  If the people left, how much additional money would they have lost?  $5 billion?  $20 billion?  $100 billion?  Where would Senator Dodd and Barney Frank be then? 

    Perhaps we can toss out Democrats and Republicans in 20 months and elect a new party - the "unemployed".  They will understand this the better than this group.

    rick 18 Mar 2009

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  • This should never have happened if they sold all the assets they would have been better off. Now we are left to prop up all the other investors and foreign institutions.  I say sell the company or let it merge, thats the only way the taxpayers are going to get back their billions. this is a lame corporation...

    odsalinero 19 Mar 2009

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  • Are you offering to buy it, odsalinero? Which parts? And, what will you use for financing? I'm sure Uncle Sam will be happy to receive your bid. --Jon Jacobs, eFinancialCareers News staff

    Jon Jacobs 19 Mar 2009

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  • Answer:  When it is extortion

    Both the company and some of these specific executives seem to think they have such “special knowledge” that only they can unwind the mess they created.  Even the CEO of AIG said yesterday that it isn’t true, that there are others who could be hired to manage the area.  Where are these guys going to go anyway – Bear Stearns?  Lehman Bros?  Citi?  And if they are such valuable geniuses, how come they created one of the biggest pile of losses in the history of business?

    The banks pay premiums into the FDIC.  As a taxpayer, what riles me is the extortion of the public (government) by companies “too big to fail” (TB2F).  Effectively, we issue TB2F insurance without collecting any premiums for it.  Perhaps we need a TB2F Insurance Corporation.  Then the biggest companies could choose to split up or to pay premiums.

    jimgggg 19 Mar 2009

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  • Quit the belly aching.  The entire commission, bonus driven incentive system has been mired in conflict of interest issues for years and is the main reason the industry is in so much trouble.  So let's cut to the chase.

    The systemic, internal conflicts have created this mess and it is time to eliminate it.  Any organization found liable for tolerating the kind of malfeasance that put the financial markets into a stand still should be closed down and punished criminally!

    If an individual wants to be a "Rain Maker" then let them open up their own business and make rain.  Otherwise, these outrageously paid sociopaths will continue to steal, back-stab and lie without concern for the customers who pay them and organizations who provide outrageous commissions and bonuses will continue to push crap into the market to line their pockets.  Keep people honest: pay them a salary and provide mobility in an organization based on merit.

    It's not rocket science.  Close them down.

    tmckeown 19 Mar 2009

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  • i think som managers at AIG should give back all their hundred milllions of bonus,...thats completely unsane the amount of bonus,...

    "Before he was forced to retire in March 2008, Cassano received $315 million: $280 million in cash and an additional $34 million in bonuses.[5] An initial $1 million-a-month consulting fee was later canceled.[6] In the wake of the scandal, United States regulators and the United Kingdom Serious Fraud Office began investigating Cassano's dealings to determine whether they were just excessive and risky, or criminal.[7]

    http://en.wikipedia.org/wiki/Joseph_Cassano

    Ted 21 Mar 2009

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