I appreciated the Opinion piece in today's NY Times, written by an executive at AIG. In it, the author announces his resignation and his disappointment with AIG CEO's refusal to defend those who received bonuses. The opinion piece was well written and made me think a little deeper about the issue. However, it did not change my mind. I still think the bonuses were outrageous.
Basically, the author of the Opinion piece says that his unit was not responsible for the meltdown at AIG, so therefore the public scorn should not be directed at him. This is true if the only reason people are upset about the bonuses is because they thought the bonuses were going only to people who caused the problem. But the bonuses were outrageous even knowing that they also went to people at the firm who were not involved in mortgage-backed securities.
The company was so close to bankruptcy, and close to bringing the whole economy down with it, that it required a government (taxpayer) bailout. Since the firm is in such a precarious situation, all planned expenses need to be reconsidered to determine whether they are integral to save the firm (or at least mitigate the damage it has caused). Bonuses cannot be considered a necessary expense in light of these circumstances.
Now, some people are arguing that the bonuses were necessary to retain the talent at the firm. This does not make sense; with the number of layoffs at financial firms there is a surplus of labor. This surplus gives the firms bargaining advantage and will drive wages down. So bonuses should not be necessary to keep employees, and if they choose to leave, the firm can find newly unemployed workers to fill those positions.
The government got involved because there were legitimate financial obligations that AIG was likely to have trouble meeting. Bonuses were not one of those obligations.
While I took the opinion piece at face value, there is an obvious contradiction in it. The author mentions that he accepted a $1 salary to stay at AIG in a sense of public duty. However, he still accepted, and felt he needed, a $700,000 bonus, and is now quitting over the outrage it drew. If he recognized the need to accept a $1 salary, then he should have also realized the need to refuse / renegotiate the bonus.
1 comment:
I thought this piece was very interesting as well. One problem I have with his argument about why he and others deserve the bonus is that they wouldn't be getting anything if the government didn't bail AIG out. So, I really dislike his sense of entitlement. It isn't like AIG suddenly turned itself around (without taxpayer funds) to prevent bankruptcy.
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