Retention dissension

You can read the AIG bonus contracts right here. Congressman Barney Frank posted them this afternoon. Let me warn you, the legalese is blinding. But I've looked through the documents and would like to highlight some things.

The AIG contract says its goal for "Guaranteed Retention Awards" is (with my understanding in parentheses):

To provide incentives for AIG-FP's employees and consultants to continue developing, promoting and executing AIG-FP's business (non-specific)

To recognize the uncertainty that the unrealized market valuation losses in AIGFP's
super senior credit derivative and originally-rated AAA cash CDO portfolios
have created for AIG-FP's employees and consultants (things could go to hell in a handbasket, but you'll still get a guaranteed bonus)

To ensure that AIG-FP's and its employees' and consultants' interests continue to
be aligned with those of AIG and AIG's shareholders (written before taxpayers took over)

To show the support by AIG of the on-going business of AIG-FP by implementing a meaningful employee retention plan (stick with us and we'll show you the money)

Later on in the document, there's a section on what causes people to forfeit their guaranteed bonus:

The Covered Person's employment is terminated by AIG-FP for cause ("cause" means conduct involving intentional wrongdoing, fraud, dishonesty, gross negligence, material breach of the AIG Code of Conduct or other policies of AIG-FP or AIG, or conviction of or entry of a plea of guilty or no contest to a criminal offense).

I think you can at least make a serious case for gross negligence. But in fact, you don't need to because here's another reason:

The Covered Person's employment is terminated by AIG-FP during calendar year 2008 due to the Covered Person's failure to meet performance standards

Aha! Accountability! Not so fast. For underperformers:

Only the Guaranteed Retention Award attributable to the Covered Person's 2009 Compensation Year will be forfeited, and the Guaranteed Retention Award for the Covered Person's 2008 Compensation Year will remain payable at the same time that Guaranteed Retention Awards are paid to Covered Persons whose employment is not terminated.

Translation: Anyone kicked out in 2008 still got their 2008 bonus on March 15, 2009.

Finally, there's this little tidbit:

The Committee may from time to time, with the approval of the Board, amend these Plan terms in whole or in part; provided, however, that any such amendment may not reduce or delay payment of any Covered Person's benefits and entitlements under the Plan in respect of the Covered Person's 2008 and 2009 Guaranteed Retention Awards

The company can alter the terms, but not the payouts. What in the world?
Plus, there's a $67.5 million limit on how much the Bonus Pool can be reduced as a result of "Realized Losses arising from the CDO Portfolio." AIG lost $99 billion last year, and we all know why.

So now, you can see for yourself why this money has been paid out. For the record, at today's Congressional hearing, AIG CEO Edward Liddy said some employees have agreed to return their bonuses, and he's asking others who got more than $100,000 to pay back half.

Skirting under the radar a bit today, news about bonuses at Fannie Mae and Freddie Mac.

Fannie Mae will give retention bonuses as high as $611,000 to keep employees in place, even though Fannie and Freddie combined lost $108 billion last year, and even though the Treasury agreed to give them as much as $200 billion a piece.

James Lockhart, director of the Federal Housing Finance Agency, called the bonus plan reasonable and said: "the companies' employees are among their most valuable assets and that retaining key personnel was critical for the regulator when the two were placed into conservatorship in September."

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Congratulations, Mr. Jagow!
Your explanation is highly instructive and enlighted.


The outrage over these bonuses is mildly encouraging, but where oh where is the outrage about these peoples' *past* crimes?

2009 bonuses tied to 2008 levels: But wait, why were there any bonuses in 2008? If *any* of these people were even 1/10th as good as we're now being told, they knew what was coming. We are faced with only two plausible explanations. The entire management chain was either

1. in collusion
2. incompetent

Why do any of them still have *jobs*, let alone *bonuses*?

Where is the outrage at all the other companies where the exact same events were unfolding?

Ed Libby is "asking" those who got more than $100,000 to give back half. Is that supposed to be funny? A little dark humor for dark times?

So. Someone originally getting 100K has to settle for a paltry 50K. That in itself is above the median US annual income. Someone originally getting 1M has to settle for a paltry 500K. That's well above the 98th percentile US annual income. (Percentile incomes from http://en.wikipedia.org/wiki/Household_income_in_the_United_States)

The "half a bonus" idea is simply an insult, no two ways about it. But what's worse, I seriously doubt any of them would suffer in the slightest if they got no bonus at all. The bonuses are grabbing all the attention, but the downside of focusing on the bonuses is it ignores everything that went before. The bonuses are merely the most *recent* crime, but there's years of crimes leading up to today. What kind of punishment for all those years of crime, to lose these bonuses they probably won't even miss anyway?

Yes the bonuses are a crime, but they're not the *only* crime. There need to be consequences for *all* the crimes.

Oops, sorry. "Liddy", not "Libby".

I just don't see how anyone who received a large bonus like that feels okay morally or ethically with keeping it in light of the current economic situation. To the average American taxpayer, especially those who have lost jobs, bailing out these businesses was already an open wound. Now these bonuses = "please pass the salt"!

Wow! What a sweet deal for these beneficiaries of this plan. There is nothing in the world like a one sided contract. Somewhere I was told that to have a valid contract it had to have two elements 1. Specific Performance and
2. Consideration.

I'm no lawyer, but I guess the specific performance is you show up to work for us, you don't of necessity have to do it well, i.e. put the company totally at risk; and we'll give you the consideration.

What a sweet deal! I want one.

There is a certain irony here. The gasbag critics of the Obama administration have been screaming about how he is going to introduce socialism, while ignoring the fact that as far as corporate America is concerned, it already exists and its beneficiaries have made billions.

The AIG boondoggle is one of many examples of socialized risk and privatized profit. It's OK for a CEO to make over 400 times what the average worker makes. It's OK for the average worker's wages to be stagnant. It's also OK for the CEO's company to take ridiculous financial risks and profit from them, whether they succeed or not, because the taxpayer will clean up the mess, and they'll get rewarded anyway. When the government proposes to help someone besides billionaires with aid, it's socialism and it's evil. When the government bails out greedy and reckless corporations, it's necessary because they're "too big to fail," but it's not socialism and it's not evil. On top of this, we're supposed to blithely accept rewarding people who caused a financial meltdown.

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