The Other Kind Of Bankruptcy
March 18, 2009
Outrage over the news that insurance giant and government bailout money recipient AIG paid large bonuses to top executives has rippled through the news cycle this week. AIG paid bonuses of $1 million or more to 73 employees in its financial products group, the group that brought the company to its knees. It is sad that, so far as we know, not one of those 73 people had the decency to turn down money they didnt deserve.
The bonuses, known as retention bonuses, were intended to ensure the firm retained talented executives. And therein lies the first problemthe bonuses didnt even do what they were supposed to do. At least 11 of the people who got these $1 million-plus kitties are no longer with AIG. Theyve been given a bonus to stay without actually staying. Can anyone but the overpaid executives themselves and their professional mouthpieces honestly defend these practices even in the best of times?
The political leaders who are now calling for the AIG bonuses to be returned knew full well (or should have known) that these bonuses were in executive contracts before they agreed to the bailout. And now they know theres likely little they can do about it. That hasnt stopped them from performing the hackneyed political theater of bold threats and pronouncements, and promising to spend more taxpayer dollars pursuing legal dead-ends.
As a society, we are beholden to our laws, and we cannot go around dissolving legal contracts just because they are unpopular. Even the most avaricious are entitled to protection by an unbiased legal system, and I wouldnt want to live in a country where the rule of law is dictated by the sound bites of grandstanding politicians.
But just because something is legal doesnt make it right. Maybe what this market needs more than anything else is some good, old-fashioned morality. Society functions not through the constant enforcement of law, but through commonly practiced standards of right and wrong, and no one is too smart or too rich to abide by them.
The executives at AIG may be legally entitled to the bonuses, but it is wrong to take them. It would be wrong to take them even if taxpayers were not footing the bill, simply because it is wrong to take home millions, contracted or not, after running your company into the ground.
It would be nice if the outrage generated by these and other bonuses ushered in a new age of common sense. Contracts that guarantee large bonuses under any and all circumstances should be a thing of the past. Bondholders, stockholders and taxpayers unitethe golden parachute should go the way of the golden calf. Bonuses of any kind should not be due when your crippled company is dragged to the government trough.