Here's a Suggestion for AIG and Its $100 Million Bonus Plan

The Washington Post reports that American International Group (AIG) is poised to pay workers in its Financial Products Group (FPG) a $100 million bonus today. FPG sold credit default swaps (CDSs), a form of bond insurance, without reserving against the possibility that it would have to pay claims on them. And that group is primarily responsible for America's $182.3 billion AIG bailout in September 2008.

In a normal business, you pay bonuses to top-performing employees if the business earns a hefty profit. So, of course, AIG must have earned a profit, right? Not exactly. It lost $99 billion in 2008 and $5 billion in the first three quarters of 2009. So why do these people now deserve a bonus?AIG defenders might argue that the $100 million bonus -- an average of only $500,000 per employee -- is a great deal because FPG's 200 employees were originally scheduled for a nearly $200 million bonus this March after getting $168 million last year, according to the Post. Do the folks at FPG deserve even that $100 million for contributing to a company that has generated over $100 billion in losses in the last two years?

Of AIG's $182.3 billion in bailout money, $12.9 billion went to pay Goldman Sachs (GS) 100 cents on its CDS dollars. Speaking of Goldman, it's paying bonuses averaging $555,000 per employee, which is probably understated thanks to the firm's new tactic of counting contractors as employees. But at least Goldman earned a $13.4 billion profit -- 16% higher than its previous record.

Can't Break a Contract?

Again, AIG defenders point out the firm has a contractual obligation to pay these bonuses, and you can't violate a contract. But by cutting the bonuses in half, hasn't that principal already been violated? Moreover, is the job of overseeing a liquidating CDS portfolio really so difficult that the people who do it need to get such big bonuses from the American taxpayer?

I'm sure we could find 200 people among the millions of unemployed in America to do that job and happily get them to accept a more reasonable pay rate.

Here's a suggestion: How about waiting to pay any bonuses to AIG employees only after U.S. taxpayers have gotten all their money back? Then bonuses should come out of AIG profits. No bonuses until those conditions are met.
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