An Interesting View of the AIG Bonuses

[Damocles]

http://www.fool.com/investing/gener...an-absolute-joke.aspx?source=ihpsitmpa0000001

You've probably heard by now: AIG (NYSE: AIG) -- fresh off of $170 billion of bailouts -- will be paying $450 million in bonuses to certain employees. Lucky them.

We've been here before, and we typically get nowhere. Bonus brouhaha has stumbled over the notion that those not involved in a firm's undoing -- such as a municipal bond underwriter at Goldman Sachs (NYSE: GS) or a wealth advisor at Bank of America (NYSE: BAC) -- shouldn't be penalized for their wayward coworkers' adventures.

Well, these bonuses are an entirely different story. They're going to members of the financial products division that's almost solely responsible for Big A's demise. For the most part, these are not people who earned their pay by any stretch of the imagination. In the words of President Obama this afternoon: “Under these circumstances, it's hard to understand how derivative traders at AIG warranted any bonuses ... How do they justify this outrage to the taxpayers who are keeping the company afloat?"

More at link...

 

[Cancel3]

http://www.fool.com/investing/gener...an-absolute-joke.aspx?source=ihpsitmpa0000001

You've probably heard by now: AIG (NYSE: AIG) -- fresh off of $170 billion of bailouts -- will be paying $450 million in bonuses to certain employees. Lucky them.

We've been here before, and we typically get nowhere. Bonus brouhaha has stumbled over the notion that those not involved in a firm's undoing -- such as a municipal bond underwriter at Goldman Sachs (NYSE: GS) or a wealth advisor at Bank of America (NYSE: BAC) -- shouldn't be penalized for their wayward coworkers' adventures.

Well, these bonuses are an entirely different story. They're going to members of the financial products division that's almost solely responsible for Big A's demise. For the most part, these are not people who earned their pay by any stretch of the imagination. In the words of President Obama this afternoon: “Under these circumstances, it's hard to understand how derivative traders at AIG warranted any bonuses ... How do they justify this outrage to the taxpayers who are keeping the company afloat?"

More at link...

If the bonuses are performance based, and not part of the division that screwed them up, the employees should get them.

I think this entire deal is a kneejerk reaction to the news media blowing it all out of proportion.

 

[Mott the Hoople]

If the bonuses are performance based, and not part of the division that screwed them up, the employees should get them.

I think this entire deal is a kneejerk reaction to the news media blowing it all out of proportion.

Correct me if I'm wrong, but when the taxpayers had to bail out their company to the tune of 175 billion dollars, it's kind of hard to "Blow things out of proportion."

 

[Bonestorm]

If the bonuses are performance based, and not part of the division that screwed them up, the employees should get them.

I think this entire deal is a kneejerk reaction to the news media blowing it all out of proportion.

I think the bonus issue is just a symptom of bigger problems and serves as a catalyst for people to just say enough. Instead of bailing out the system we're bailing out the players and the players shouldn't be bailed out. They should be investigated.

As for the performance-based issue, of course they aren't performance based. They were set up to be not performance based because the management knew that if they were performance-based no one would get a bonus, which in the financial industry is a matter of right, not a reward. Bonuses are only performance-based in the good years. It's set up as a heads they win, tails they win scenario.

I think this analysis is pretty spot on:

There are all sorts of accounting reasons that firms hand out much of their compensation in the form of bonuses, but those incentives, like the bonuses themselves, stem from historic practice. Most Wall Street firms began as partnerships, not as publicly-owned corporations. Partnerships apportion their profits at the end of their fiscal year; that practice has remained the norm, even though shareholders (or, in the case of AIG, taxpayers) now own these corporations.

And that's really the nub of the problem. Most Wall Street firms have gone public; at the same time, many public banks have entered the Wall Street game. But corporate governance, compensation, and accountability haven't kept pace. In essence, these firms offloaded most of their risk to shareholders, but continued to be run in an insular fashion, and to divert the great bulk of their surplus revenues to their workers and executives. In the bubble years, enough cash rolled in that the complaints were muted - executives and traders took it home in wheelbarrows, and the share prices still went up.

But those working on Wall Street have come to regard their bonuses - their traditional share of the profits - as guaranteed compensation. They want the rewards of ownership with the security of employment. And that's just unsustainable.

When it comes time to sort through the wreckage, and to erect a more sustainable model, I hope we pay a little more attention to corporate governance. That those who own the corporation - shareholders - have long had little say in its operation is a scandal. It's been driven home this week by the realization that simply substituting 'taxpayer' for 'shareholder' does nothing to change the locus of corporate power - in either case, it rests less with the owners than with the board and executive suite. And, all too often, those groups pursue interests divergent from those of the ownership. Levying a tax on undeserved compensation is a bromide - it makes us feel better, but neither solves the problem nor prevents its recurrence. The real solution lies in ensuring that corporations are run in the long-term interests of their owners, not to line the pockets of their executives.

 

[charver]

Correct me if I'm wrong, but when the taxpayers had to bail out their company to the tune of 175 billion dollars, it's kind of hard to "Blow things out of proportion."

Only 175 billion in the red? If it were 200 billion i'd be the first to say "no bonus today" but a mere 175 billion dollars?

Have a heart.

 

[Mott the Hoople]

Only 175 billion in the red? If it were 200 billion i'd be the first to say "no bonus today" but a mere 175 billion dollars?

Have a heart.

Well it's kinda like what Senator Proxmire said. "A few billion dollars here and a few billion dollars there and pretty soon were talking about serious money."

 

[Minister of Truth]

Well it's kinda like what Senator Proxmire said. "A few billion dollars here and a few billion dollars there and pretty soon were talking about serious money."

That's also been attributed to Sen. Dirksen.