Jake DeSantis, an executive vice president of AIG wrote this Op-Ed, Dear A.I.G., I Quit!
"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."
It's a good letter and I have no reason to doubt its accuracy (though I expect some reports on it to come). Moral questions are often difficult and reducing things to soundbites (bonuses!) never helps. It all comes down to whether or not these people were involved in the downfall or not and whether or not they were grossly overpaid by a bankrupt company. People deserved to paid for their work, but when a firm fails, even the innocent are hurt. Now Liddy will have to replace some of these people, and good luck doing that in this climate of rage towards AIG. I hope our investment in saving the company isn't lost.
7 comments:
This really illustrates the all-or-nothing attitude that people have taken about this. I definitely think there were some serious problems with the AIG bonuses. For example, they're often described by Liddy and others as retention bonuses, yet they were paid to many people who had already left the company. I have participated in a retention plan, and getting the final payment required that I still be employed by the company at the time it was paid. THAT seems like a reasonable restriction for a retention plan.
The other big issue I see is that some of the bonuses were huge. DeSantis, the EVP who resigned, had a $1 salary and was "bonused" a little under $750k. While I'm skeptical that he actually offered a quarter of a million dollars of value to the company, I'm a skeptic in general so perhaps he was worth it. Reportedly others received more than $4M, and that is definitely overpayment from a company that's gushing cash like Niagara Falls.
I think DeSantis deserves to be paid for the work he did. In fact, I think all of the productive employees of AIG deserve to be paid commensurate to the net value they brought to the company, which means that some of the actually-responsible CDS guys should probably give back everything they've ever earned at AIG. (DeSantis refers to them as as "handful" of the 400 employees of the FP group.)
I mostly agree. Regarding those no longer with the company, we don't know when they left or if they completed their work. Liddy said they've already cleaned up $1 trillion, if DeSantis or someone was responsible for a large portion of that, then yeah, I could see a large payout being made.
I can't immagine anyone will shed a tear for a VP who allowed his company and division to fail as badly as AIG-FP did.
This whole bonuses scandal is just a cover up for much bigger issues that the politicians aren't willing to discuss publicly.
Millions, billions, trillions.. Who knows the difference? The general public doesn't for sure.
Take care,
Julie
According to the op-ed, he wasn't involved the failures of FP and was involved in cleaning up the mess. Unless I see something to contradict this, I have to at least give it the benefit of the doubt. The head of FP was clearly involved, but it's also clear he's gone.
The bonus was in lieu of a regular salary. Everyone is all hot and bothered about these bonuses, but let us separate legal from moral and wise from unwise.
If there were contracts that these people would be payed a specified amount for achieving certain goals (perhaps something as simple as work until a certain date) and they did it, then pay them. I suppose if AIG had gone bankrupt and there was no money then they couldn't do that but the government didn't let that happen did they? That's the legality of it, though perhaps the contracts were unwise. Many companies have some fraction of pay "at risk". You get a salary and then a bonus if you meet certain goals, typically the higher up in the company, the more of your pay is "at risk". These guys had a higher ratio than most. Setting the goals must also be done with some thoughtfulness as well.
Morally, I am not sure if I have an answer for that. The misery caused by this financial meltdown is enormous and might perhaps be balanced by the pleasure (or utility) gained during the bubble that preceded it. Who do we punish? It is not clear and it is not clear whether punishment will prevent this the next time. I don't know if I want punitive taxes on these bonuses because that is something that could work down the chain pretty quickly. And good luck getting anyone to do this kind of work again if there is no reward.
It is more important that regulation works to increase the transparency of all of these deals and of the financial system in general. Then inventors are more likely to understand the rick and invest accordingly and hopefully cry less when their risky investments prove to be risky.
I basically agree. The hard part on transparency is making it work. HIPPA tried to increase privacy by increasing disclosure. Now when you go to the doctor they ask if you want to read a useless brochure or a lengthy legal document about how they protect your privacy. Most people say no, and those that say yes don't typically read it. Those that do are annoyed that it doesn't really say anything intelligible.
We have all kinds of required financial disclosures but you can't understand them in any reasonable time frame. And investing in a huge company is so difficult because it's hard to understand all the businesses they are involved in. P&G got pummeled by bad derivative investments in the 90s. People thought they were buying into a soap company, not a derivatives trader. How many investors could understand the annual report to figure this out.
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