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.”