AIG Executive Bonuses

In Yu Y.’s post from March 16, 2009 he argues that the AIG bonus payments to executives are a bad thing and that the company needs to be restructured, especially with regard to their risk management techniques in place. He explains that by accepting such huge bailouts from the government, AIG is not only ruining their public reputation, but they are also putting a huge burden upon taxpayers, who are now expected to pay for these executive’s bonuses. He believes that by redesigning AIG, they will slowly but surely regain a positive reputation and respect from the public.

Yu's Blog

Though I do agree with some parts of Yu’s post, I feel that he is not taking enough factors into consideration when looking at this bailout for AIG’s executives. The media seems to be portraying these AIG executives automatically in a very negative light, and this is simply not fair to them, since none of us really know anything about these executives. Though some of the fault for the failure of the company may be based on their actions, that’s not something we can really determine. There are many reasons why these bonuses may be quite needed, a good thing, and help AIG begin on the path to recovering and regaining their reputation. The reality of it is that they were promised these bonuses, they will cost $165 million, and it could have been avoided if specific bills were signed as listed in this article by the Associated Press, such as signing a provision on the economic stimulus bill that would have denied such payments being made.

AIG Executive Bonuses - Yahoo News

First of all, many AIG executives either would not take the bonus money in the first place, or have since given back the money received. In fact, many of them had even already given a great deal of their regular salary to AIG to help the company get through this crisis. If you think about it, these executives want to help AIG as much as they can, this is the company they work for, and if AIG fails, they are out of a job and looking for new work elsewhere. The below article details specifics on executives that have given back, or plan to give back their bonuses. One particular executive listed is Jon Liebergall, who was the co-head of North American marketing for AIG's financial products.

AIG Executive Give Back Bonuses

Another thing is that AIG executives were promised bonuses in their contracts. So many contracts lately have been completely thrown out and disregarded, but this is not a fair thing to do at all. If a contract is made and is then not something that has to be followed up with, why would anyone ever want to enter into a contract anymore? If one thinks about this from a risk management standpoint, consider things such as forward contracts. If an individual could enter into a forward contract and then not fulfill it – either by not paying as they had promised, or not delivering a set amount of goods, then no one would ever enter into this sort of contract again. Yes, it is unfortunate that AIG failed, and yes it is partially the fault of some employees, but it isn’t right to deny an executive a bonus, when most likely they were working hard all year in expectation of that bonus, as promised in their contract. The below article explains that these bonuses are necessary due to this contractual obligation, stating “an individual employee of AIG, who entered into a good faith contractual relationship with his employer requiring the employer to pay a bonus to the employee who has not broken the law or breached the employment contract, has a right to receive the benefit of the bargain – just like you and I do in our contractual relationships.”

AIG Contractual Obligation

Additionally, because AIG is going through such a rough time right now, the last thing they want to do is lose valuable, hard working employees. Though it is just speculation whether these executives were really hard working or not, we cannot simply just assume that they are responsible for the problems of the company. AIG needs to keep their talented workers right now, and if giving these executives bonuses is the way to do it, then at least that’s a start. If these executives were really great at their job, and didn’t receive the compensation they deserved, they would immediately be out looking for a new job, which is going to harm AIG even more.

I think that everyone needs to take a deeper look at the role these executive bonuses pay for AIG as a whole. It is not right to simply assume the worst about these executives, when that simply may not be the case. There are many reasons showing that these bonuses may really be needed to help out AIG, though it is unfortunate that such a huge bailout is required for them.