AIG Is Yet Still Going To Give Out 100 Million More In Employee Bonuses

By Susan Thompson on February 6, 2010, 12:18 pm

In spite of the fact that American International Group (AIG) is technically under compensation restrictions the company has plans to pay yet another round of employee bonuses, this time worth about $100 million, to the dismay of taxpayers who now own the firm. These bonus payments go to employees at AIG’s derivatives unit who had agreed to accept to stay at AIG and accept 10 percent less money, while those who have left the unit take 20 percent cuts. In return, those who were retained received compensation in advance.

Even though they ran the company into the ground, those employees are still legally entitled to bonuses under contract, even if they have lost their jobs. Not surprisingly, AIG has eliminated 200 of these jobs while eliminating their derivatives business. Nonetheless, they still get paid by taxpayers for their part in placing the world economy at the brink of a depression.

Why Do Taxpayers Have To Pay For Failure

Last summer, the Compensation Czar was attempting to come up with a solution so that AIG would not have to pay these bonuses. Clearly, he did not come up with any good ideas. Unfortunately, there’s little that anyone can really do to discontinue these bonuses. As long as AIG stays in business it is legally obligated to pay these bonuses. This is a big part of the “too big to fail” lesson.

AIG executives too have been rushing to come up with a compromise before the ides of March, but there seems to be no end in sight and no way out of these legal obligations. Administration and AIG officials want to circumvent a recurrence of the uproar that blew up last summer when a round of payments near $170 million was paid to the same employees. The AIG retention bonuses have particularly infuriated taxpayers since the company has received a public rescue package of $180 billion.

 

The Bailout Problem – Too Big to Fail

These unpleasant events strain the dilemma with bailouts. If the government decides to back AIG, a company that should have failed and it has to honor its contracts as well. If AIG was not so big that failure was catastrophic and had been allowed to fail, then all of those contracts would have been void, and dealt with in bankruptcy court.

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