AIG, Bad Management Gets Rewarded

This post was written by jd on March 17, 2009
Posted Under: Real Estate

So what do you think of AIG receiving $160 million dollars in bonuses?  AIG (American International Group) is an international insurance and financial services organization. You may know that’s only part of a larger package of $450 million of bonuses that are due by contractual agreement with upper management. Who is running AIG anyway?  How can a company that was facing bankruptcy ever come up with a contract that awards money to executives that can’t manage?

AIG received $170 billion in bailout funds and may need more. Some pundits are saying so what, that the bonus payout only amounts to .0097 of one percent of the total bailout monies given to AIG. Are we missing the point here? You reward bad management because it’s only a pittance of the company’s bailout or earnings?

I think that executives that receive large salaries and bonuses lose touch with what’s going on in their company.  Receiving large amounts of money, private jets, all kinds of perks, places the CEO’s and managers in their own separate world, far removed from day to day operations. You only have to look at Merrill Lynch’s CEO, John Thain, remodeling his office in the amount of $1.2 million dollars along with giving a couple of billion dollars in bonus as the company failed and had to be taken over by Bank of America.  Hey, if you’re going to get that kind of money win or lose, what’s the incentive to make sure your company is going to make money? Whatever happened to the concept that your earnings are tied to the earnings of the company you’re running?

Here’s a comment from Jessie M. Fried:

 “If the government were to go in now and try to renege on these contracts, people would just leave the company and the company would collapse,” said Jesse M. Fried, a University of California, Berkeley law professor and co-director of the Berkeley Center Law, Business and the Economy.

Excuse me, in this job market, if the managers don’t get a bonus, where are they going to go? In fact, I understand that some have gotten their bonus and then quit. Finally, here’s a little more detail of what American International Group bonus payouts were.

Fox News reports “New York Attorney General Andrew Cuomo says 73 employees at American International Group received bonuses of $1 million or more, with one receiving more than $6 million. 

In a breakdown of the figures, Cuomo reported that the top recipient at AIG got more than $6.4 million and the top seven received more than $4 million each. 

“These payments were all made to individuals in the subsidiary whose performance led to crushing losses and the near failure of AIG. Thus, last week, AIG made more than 73 millionaires in the unit which lost so much money that it brought the firm to its knees, forcing a taxpayer bailout,” Cuomo wrote. “Something is deeply wrong with this outcome.” 

Yes, there is something wrong with this outcome and with a lot of the upper management of our large companies.

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