March 25, 2009

The biggest bonus I ever received in the workforce was a $75 gift certificate to a restaurant in Hartford, Conn., when I was a staff writer at a local newspaper there.

So, I'm not going to pretend to fully understand the expectations of financial services executives and what is truly fair or unfair about the recent AIG bonus controversy. On this particular subject, I'm less an "informed journalistic voice" and more "uninformed public jackass" (the distinction between the two is, well, a finer line than many of us would like to admit).Unless you're a member of the 2004 Boston Red Sox, I can't fathom a situation in which a six- or seven-figure bonus would be a truly deserved payment (especially when working for a failing company). Then again, I don't think a company should renege on previously agreed upon compensation packages, nor do I think the government should be in the business of contract abrogation.

To set the stage, I'll leave it to a fellow industry blogger to weigh in on the subject.

From Mike Gantt's Insurance Technology Blog: --- We need leaders to restrain mobs, not egg them on.

Do I think AIG is justified in paying out bonuses? I don't know whether they are or not because I don't know the particulars. If a bonus is a contractual commitment and especially if it is owed to an employee who worked in a division of AIG completely unrelated to the need for government aid, then I don't see how you can automatically rule it out. When you start saying it's okay for government to abrograte contracts between private citizens, you're giving the politicians an awful lot of power.

The purpose of a bonus is to make part of a person's compensation contingent on what they do. If the person fulfills his or her part, is it fair to unilaterally, without discussion, deprive them of what they earned? If I analyzed the specifics of each bonus payment I might be against them all, but how can I be against all of them if I have not analyzed the specifics of any of them? ---

It's that last line that stuck out to me. The thing that has irked me most about this entire AIG bonus controversy hasn't been the number of bonuses or their size, but how little time politicians and reporters have taken to understand just who exactly is receiving these compensation packages.

It can be easy to express a little, as Jon Stewart might call it, populist rage and say, "Some of these bonuses are going to those in the very same division of AIG that was responsible for the credit default swap transactions largely responsible for the company's current troubles!"

But that wouldn't be the whole story. Who exactly is getting the bonus? Is it an exec whose irresponsible decision making landed the company in financial ruin or an exec who has been brought in and given the unenviable task of cleaning up the mess?

Surely, the public would be able to discern the difference between the two and understand why one might deserve compensation for his or her work while the other might not. On the other hand, the public might feel that a six- or seven-figure bonus is too much for anyone working for a thrice bailed-out company, regardless of what role they're playing in the larger mess.

If we took a closer look at these bonuses and the people receiving them, at least the public could decide for itself exactly how outrageous this whole situation is. As it stands now, we're taking direction from politicians who are hungry for our support and media outlets starved for TV ratings points and, ahem, Web page views. Many of them may not care what the actual truth is as much as how they can leverage perceived truth.

With that in mind, I'll leave you with an excerpt from a very interesting Op-Ed piece in today's New York Times by Jake DeSantis, an executive vice president in AIG's infamous financial products unit and a recipient of one of the company's infamous bonuses. I wonder if his situation and his actions are an exception or the rule.

From NYTimes.com: --- I am proud of everything I have done for the commodity and equity divisions of A.I.G.-F.P. I was in no way involved in - or responsible for - the credit default swap transactions that have hamstrung A.I.G. Nor were more than a handful of the 400 current employees of A.I.G.-F.P. Most of those responsible have left the company and have conspicuously escaped the public outrage.

After 12 months of hard work dismantling the company - during which A.I.G. reassured us many times we would be rewarded in March 2009 - we in the financial products unit have been betrayed by A.I.G. and are being unfairly persecuted by elected officials. In response to this, I will now leave the company and donate my entire post-tax retention payment to those suffering from the global economic downturn. My intent is to keep none of the money myself.

I take this action after 11 years of dedicated, honorable service to A.I.G. I can no longer effectively perform my duties in this dysfunctional environment, nor am I being paid to do so. Like you [DeSantis' Op-Ed is written in the form of an open letter to AIG CEO Edward M. Liddy], I was asked to work for an annual salary of $1, and I agreed out of a sense of duty to the company and to the public officials who have come to its aid. Having now been let down by both, I can no longer justify spending 10, 12, 14 hours a day away from my family for the benefit of those who have let me down. ---If we took a closer look at the AIG bonuses and the people receiving them, at least the public could decide for itself exactly how outrageous this whole situation is.

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