The Other Kind Of Bankruptcy

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 didn’t deserve.

The bonuses, known as retention bonuses, were intended to ensure the firm retained talented executives. And therein lies the first problem—the bonuses didn’t 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. They’ve 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 there’s likely little they can do about it. That hasn’t 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 wouldn’t 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 doesn’t 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 unite—the 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. 

Recent Posts

Investors Win Warner Chilcott Battle, But Expect a War

Investors this week pushed back on Warner Chilcott’s attempt to reduce pricing on its $1.95 billion term loan B, but most don’t believe the market’s repricing fight is over...

Bad Buyouts and What We Could Do about Them

Allied Stores. Burlington Industries. Charter Medical. E-H Holdings. Federated Department Stores… These companies are among the 13 that, between 1985 and 1989, issued a billion or more in junk bonds to help fund a buyout—then promptly went bankrupt...

A Repeat of 2009 Returns? Not. But No Disasters Either

As we here at Leveraged Finance News join you in saying goodbye to 2009 and looking ahead at the year to come, two little words spring to mind: do over? Maybe not all of it, but certainly returns...

Cha-Ching! High Yield Brings High Bonuses

While returns in the 40% to 50% range portend a 2009 Grinch-free holiday season for most leveraged loan and high yield bond professionals, those dedicated to selling and trading junk bonds are on track to receive the highest bonuses...

Index of Posts


The site content is OK, very good, very interesting. By the way electronic products class article? I would like to take a second look!Ramos?W17Pro

Posted by: qing h | May 24, 2012 10:40 PM

Your nice article, thank you for sharing.At the same time, recommend to you xxx at Teclast A15 Tablet

Posted by: new f | March 27, 2012 9:35 PM

It is nice that you posted something like this Washion M9 Lite and I am quite lucky to read it. Thanks for posting this!

Posted by: guo h | March 25, 2012 9:27 PM