AIG to Taxpayers: Let Them Eat Cake
I’ve already identified AIG as the poster child for a bailout of corporate leadership in the current economic crisis. According to an article in the Washington Post, AIG is a company so far removed from normal people and basic reasonableness, there’s nothing it won’t do.
The federal government has committed $152 billion to bail out AIG from its economic woes resulting from its own mismanagement. When this commitment was made to AIG, officials of the Treasury Department said they had imposed some of the most stringent limits ever on AIG executive compensation in exchange for the bailout.
In a two-sentence paragraph buried inside a quarterly financial report filed with the Securities and Exchange Commission on November 10, AIG said it planned to pay out $503 million in deferred compensation to some of its top employees. The company won’t say who these people are or how many of them there are. (In contrast, UBS and Goldman Sachs have put a hold on executive bonuses.)
Deferred compensation has been increasingly used by companies as a way of attracting and retaining executives by postponing part of their large annual compensation for years — often until a set date like retirement. This defers taxation on the money, and it obviously provides significant incentive for the executives to stay with the company until they can get what has been deferred.
AIG is cracking open its deferred compensation bank for payments early next year before they’re due. Other than showing it’ll darn well do whatever it wants to do like it’s always done, why would AIG do this? The company is desperately trying to keep top talent from leaving, and tapping into these funds early is the only way the company can figure out how to do it. Oh, and by the way, this money isn’t coming from the federal government’s (sometimes called the taxpayers’) bailout money. It’s coming from money already set aside by AIG. We all know how robbing Peter to pay Paul works.
In addition to thumbing its pompous nose at taxpayers, there are two other problems with what AIG is doing. First, as soon as some of these executives get the deferred compensation, they’ll be long gone. Some of these folks have already made a ton of money. This extra money will make it possible for them to live forever on easy street or at least to bide their time doing whatever they want until they believe the crisis has passed. Second, where does AIG think these people will go if they’re not retained by AIG? Jobs, even big ones, aren’t out there any more. Besides, who in the world would hire an AIG executive to help run another company into the ground?
I’m guessing the feds will let the company get away with this. I mean, we can’t let AIG fail. It’s just too big. One thing’s for sure. Given all the problems being faced by employers and employees today, there’s not a bigger symbol of ignominy.
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Spot on, John, with one *possible* exception. I have heard several times that AIG is too big to be allowed to fail, but no one has really been able to convince me of that. So what’s the real downside? People will lose their retirement savings? That’s already happening, and it will eventually happen at AIG. People will lose their jobs? That’s already happening, and it will eventually happen at AIG. So we’re spending billions in borrowed money to delay the inevitable by a few months or a year. It doesn’t make sense to me.
Frank,
Thanks for weighing in.
I’m as baffled as you are. What bothers me a lot is that a few people, like Paulson, have been allowed to make this decision. Though Congress balked a bit, Paulson and a few others created the perception that if he didn’t get $700 billion and if A.I.G. wasn’t one of the companies bailed out, we were all goners. There are plenty of economists who disagreed with Paulson, and I’m pretty sure that if Congress had it to do over, given Paulson’s change of course on how he’s using the money, there would have been no bailout.
But what really galls me is the sheer arrogance of A.I.G. Pride goes before a fall, or it just keeps on going if you’re not allowed to fall.
John