Rewarding failure

[Zoom-boing]

The Case for Paying Out Bonuses at A.I.G.

As much as we might want to void those A.I.G. pay contracts, Pearl Meyer, a compensation consultant at Steven Hall & Partners, says it would put American business on a worse slippery slope than it already is. Business agreements of other companies that have taken taxpayer money might fall into question. Even companies that have not turned to Washington might seize the opportunity to break inconvenient contracts.

If government officials were to break the contracts, they would be “breaking a bond,” Ms. Meyer says. “They are raising a whole new question about the trust and commitment organizations have to their employees.”

. . . someone at A.I.G. decided this company needed to sign bonus agreements last year to keep people before the full extent of its problems became clear.

Now we can debate why A.I.G. felt it necessary to guarantee seven executives at least $3 million apiece when the economy was clearly on shaky ground. Perhaps we will find out these contracts were a bit of sleight of hand to enrich executives who knew this financial Titanic had hit the iceberg. But another possible explanation is that A.I.G. knew it needed to keep its people.

http://www.nytimes.com/2009/03/17/business/17sorkin.html?_r=1&hp

 

[Care4all]

why protect the AIG employees and NOT the Automaker workers?

White collar verses blue collar?

utter bull...

 

[toomuchtime_]

AIG is a separate bailout than Tarp, no? After the current contracts run out with the employees they can and should be renegotiated. From what I read there is the possibility that the employer promised something it couldn't deliver without the bailout money...so that may be one way to legally take away the bonuses.

These bonuses are for the one area of their business that failed....

HOW DOES ONE earn a bonus from a department that LOST $80 BILLION plus last year?

I'm sorry, but this is just a bunch on BUNK from AIG....imo!

I'm not sure you can place all the blame on that department. The decision to get so heavily into credit default swaps must have been made at the highest levels of management and had the approval of the board of directors. Perhaps that department did a great job of executing a plan that had been approved by the board and the failure was the result of having been given a bad plan.

In any case, if the contract had been entered into in good faith, then it should be honored.

 

[Care4all]

AIG is a separate bailout than Tarp, no? After the current contracts run out with the employees they can and should be renegotiated. From what I read there is the possibility that the employer promised something it couldn't deliver without the bailout money...so that may be one way to legally take away the bonuses.

These bonuses are for the one area of their business that failed....

HOW DOES ONE earn a bonus from a department that LOST $80 BILLION plus last year?

I'm sorry, but this is just a bunch on BUNK from AIG....imo!

I'm not sure you can place all the blame on that department. The decision to get so heavily into credit default swaps must have been made at the highest levels of management and had the approval of the board of directors. Perhaps that department did a great job of executing a plan that had been approved by the board and the failure was the result of having been given a bad plan.

In any case, if the contract had been entered into in good faith, then it should be honored.

I'd like to see their bonus contracts show that they can receive a bonus, when their department lost $80 billion?

HOW does one earn a bonus when the area in which they work, LOST THEIR ASSES?

I have worked for 3 corporations and ALWAYS bonuses were tied in to making the business PLAN?

This just boggles my mind.....???? How does one earn a bonus for LOSING MONEY?


Care

 

[Care4all]

Salary is based on doing your job, BONUS is based on succeeding in making or exceeding your sales and financial goals?

 

[DiamondDave]

These bonuses are for the one area of their business that failed....

HOW DOES ONE earn a bonus from a department that LOST $80 BILLION plus last year?

I'm sorry, but this is just a bunch on BUNK from AIG....imo!

I'm not sure you can place all the blame on that department. The decision to get so heavily into credit default swaps must have been made at the highest levels of management and had the approval of the board of directors. Perhaps that department did a great job of executing a plan that had been approved by the board and the failure was the result of having been given a bad plan.

In any case, if the contract had been entered into in good faith, then it should be honored.

I'd like to see their bonus contracts show that they can receive a bonus, when their department lost $80 billion?

HOW does one earn a bonus when the area in which they work, LOST THEIR ASSES?

I have worked for 3 corporations and ALWAYS bonuses were tied in to making the business PLAN?

This just boggles my mind.....???? How does one earn a bonus for LOSING MONEY?


Care

See my last response, care...

not all bonuses are tied to profit... some to effort, some towards the initial sale (even if that sale is foreclosed upon in the future)... and it is contractual

Now do I think businesses should learn a lesson and restructure how bonuses are given (based on long term sustainability and not just a short term punch bonus)? Yep.... Do I think the government should have looked into the structures of the bonus when they gave this money out to get a glimpse of reality? Yep...

Yet another reason why these stimuli/bailouts/whatever are just fucking bad ideas

 

[Zoom-boing]

These bonuses are for the one area of their business that failed....

HOW DOES ONE earn a bonus from a department that LOST $80 BILLION plus last year?

I'm sorry, but this is just a bunch on BUNK from AIG....imo!

I'm not sure you can place all the blame on that department. The decision to get so heavily into credit default swaps must have been made at the highest levels of management and had the approval of the board of directors. Perhaps that department did a great job of executing a plan that had been approved by the board and the failure was the result of having been given a bad plan.

In any case, if the contract had been entered into in good faith, then it should be honored.

I'd like to see their bonus contracts show that they can receive a bonus, when their department lost $80 billion?

HOW does one earn a bonus when the area in which they work, LOST THEIR ASSES?

I have worked for 3 corporations and ALWAYS bonuses were tied in to making the business PLAN?

This just boggles my mind.....???? How does one earn a bonus for LOSING MONEY?


Care

Care -- I always thought bonuses were 'merit based' and dependent upon profits and success. Logically, if the company does well you get your bonus. If the company does poorly, no bonus.

Why are these bonuses 'contracted' bonuses? What does that mean, exactly? That they get their bonuses regardless? Did the administration know this when they handed them bailout after bailout?

I see both sides of this -- swallow it and honor the contract, because no conditions were put on the bailout money (sidenote -- if they do this, they had damn well better learn the lesson and stop handing out money without any specifications on it); or try and break the contracts so those execs don't get the bonus bucks. But if they go this route, they need to really look down the pike for ramifications. Would this set some kind of president on other companies and contracts?

 

[Care4all]

If AIG went belly up, as they were going to do, without the first injection of $85 BILLION on September 17th, 2008...then ALL of those contracts would have been NULL AND VOID.

In my experience, in my own contract bonuses, they were tied in to two things:

1. Me, meeting my agreed upon goals with the company for my own specific area of business.

2. The Company meeting its over all financial plan.

IF THE COMPANY met its financial plans, then i was eligible to get paid my bonus, IF I MET or EXCEEDED, the agreed upon goals for my bonus.

This gave all of us execs a stake in how the whole company did, and not just the concern of how we did as "lone rangers" in our own area of responsibility, and kept us on the focus and decision making process that helped the Company, OVERALL.

If the company met its overall financial goals:

Then we got 40% of our agreed upon bonus amount, for the Company meeting its goals.

And the remaining 60% was paid out according to how close we got to our individual area's goals, our personal goals....if we met our goals, our financial plans or if marketing our advertising goals or whatever the agreement between us and the Company, we would get the 60% left of the bonus amount....if we did not meet them but came very close and still beat last years figures, we could get half of the 60% of the bonus money, or if we did not make any figures in our goal, we would get nothing, but still get the 40% bonus for the company meeting its sales plan.

so to recap, the company had to meet financial goals in order for any of us to be eligible for our own contracted bonuses for our own individual performances.

 

[DiamondDave]

If AIG went belly up, as they were going to do, without the first injection of $85 BILLION on September 17th, 2008...then ALL of those contracts would have been NULL AND VOID.

In my experience, in my own contract bonuses, they were tied in to two things:

1. Me, meeting my agreed upon goals with the company for my own specific area of business.

2. The Company meeting its over all financial plan.

IF THE COMPANY met its financial plans, then i was eligible to get paid my bonus, IF I MET or EXCEEDED, the agreed upon goals for my bonus.

This gave all of us execs a stake in how the whole company did, and not just the concern of how we did as "lone rangers" in our own area of responsibility, and kept us on the focus and decision making process that helped the Company, OVERALL.

If the company met its overall financial goals:

Then we got 40% of our agreed upon bonus amount, for the Company meeting its goals.

And the remaining 60% was paid out according to how close we got to our individual area's goals, our personal goals....if we met our goals, our financial plans or if marketing our advertising goals or whatever the agreement between us and the Company, we would get the 60% left of the bonus amount....if we did not meet them but came very close and still beat last years figures, we could get half of the 60% of the bonus money, or if we did not make any figures in our goal, we would get nothing, but still get the 40% bonus for the company meeting its sales plan.

so to recap, the company had to meet financial goals in order for any of us to be eligible for our own contracted bonuses for our own individual performances.

But that is not ALWAYS the case... as stated 2 times now... SOMETIMES bonuses are set and met without regard to profit... SOMETIMES those bonuses are based of the initial action, and are not punished when 7 years down the road something turns south with the loan, etc....

It is not just as cut and dry as saying "no bonus because we lost 80BIL in our department last year"

Do I think companies SHOULD use this as a hard learned lesson in how to conduct bonus payouts in the future? Yep... seems logical...
Do I think it is the government's responsibility to force that??? Nope.. we live in a free society, not a socialist one based on totalitarian government control...


And as stated... yet another reason why I did not and do not support any of these stimuli/bailout/tarp programs

 

[Zoom-boing]

If AIG went belly up, as they were going to do, without the first injection of $85 BILLION on September 17th, 2008...then ALL of those contracts would have been NULL AND VOID.

In my experience, in my own contract bonuses, they were tied in to two things:

1. Me, meeting my agreed upon goals with the company for my own specific area of business.

2. The Company meeting its over all financial plan.

IF THE COMPANY met its financial plans, then i was eligible to get paid my bonus, IF I MET or EXCEEDED, the agreed upon goals for my bonus.

This gave all of us execs a stake in how the whole company did, and not just the concern of how we did as "lone rangers" in our own area of responsibility, and kept us on the focus and decision making process that helped the Company, OVERALL.

If the company met its overall financial goals:

Then we got 40% of our agreed upon bonus amount, for the Company meeting its goals.

And the remaining 60% was paid out according to how close we got to our individual area's goals, our personal goals....if we met our goals, our financial plans or if marketing our advertising goals or whatever the agreement between us and the Company, we would get the 60% left of the bonus amount....if we did not meet them but came very close and still beat last years figures, we could get half of the 60% of the bonus money, or if we did not make any figures in our goal, we would get nothing, but still get the 40% bonus for the company meeting its sales plan.

so to recap, the company had to meet financial goals in order for any of us to be eligible for our own contracted bonuses for our own individual performances.

As I see it this is 'merit-based', yes? Are AIG's merit-based? Doesn't sound like it. Sounds like they get the bonus regardless of performance/profits, etc. Didn't the government look at this before handing over all that money?

 

[GHook93]

First I would like to say that I am mad as hell that AIG gave $160 million in bonus money. It should have been $0!

But I think Barney "the fag" Frank has a lot of nerve. This pantsy is all about rewarding incompetence. He was on the financial oversite committee, he was the one that pushed legislation that essentially forced banks into risky lending and he is the one that 6 months before Fannie Mae and Freddie Mac went under said they were financial sound! He should be in prison, but DC. He is the essence of incompetency!

 

[GHook93]

Frank: AIG is 'rewarding incompetence'

NEW YORK - The indignation over millions of dollars in bonus payments for American International Group Inc. executives grew Monday when a top lawmaker said he believes it's time to shake up the company.

....

The money was payable to executives by Sunday and was part of a larger total payout reportedly valued at $450 million. The company has benefited from more than $170 billion in a federal rescue. AIG has argued that it was contractually obligated to pay the bonuses.


Frank: AIG is 'rewarding incompetence' - U.S. business- msnbc.com

I understand the contractual obligations. It just pisses me off that we're paying for these bonuses. It is in its most basic form, theft.

BULLSHIT!
With contractual obligation AIG could have done 2 thinks, pay them or litigate. No jury in the world would have held the company with the largest losses in world history receiving a record $170 billion bailout is still obligated to give $160 million in "unearned" bonus!

 

[Care4all]

If AIG went belly up, as they were going to do, without the first injection of $85 BILLION on September 17th, 2008...then ALL of those contracts would have been NULL AND VOID.

In my experience, in my own contract bonuses, they were tied in to two things:

1. Me, meeting my agreed upon goals with the company for my own specific area of business.

2. The Company meeting its over all financial plan.

IF THE COMPANY met its financial plans, then i was eligible to get paid my bonus, IF I MET or EXCEEDED, the agreed upon goals for my bonus.

This gave all of us execs a stake in how the whole company did, and not just the concern of how we did as "lone rangers" in our own area of responsibility, and kept us on the focus and decision making process that helped the Company, OVERALL.

If the company met its overall financial goals:

Then we got 40% of our agreed upon bonus amount, for the Company meeting its goals.

And the remaining 60% was paid out according to how close we got to our individual area's goals, our personal goals....if we met our goals, our financial plans or if marketing our advertising goals or whatever the agreement between us and the Company, we would get the 60% left of the bonus amount....if we did not meet them but came very close and still beat last years figures, we could get half of the 60% of the bonus money, or if we did not make any figures in our goal, we would get nothing, but still get the 40% bonus for the company meeting its sales plan.

so to recap, the company had to meet financial goals in order for any of us to be eligible for our own contracted bonuses for our own individual performances.

But that is not ALWAYS the case... as stated 2 times now... SOMETIMES bonuses are set and met without regard to profit... SOMETIMES those bonuses are based of the initial action, and are not punished when 7 years down the road something turns south with the loan, etc....

It is not just as cut and dry as saying "no bonus because we lost 80BIL in our department last year"

Do I think companies SHOULD use this as a hard learned lesson in how to conduct bonus payouts in the future? Yep... seems logical...
Do I think it is the government's responsibility to force that??? Nope.. we live in a free society, not a socialist one based on totalitarian government control...


And as stated... yet another reason why I did not and do not support any of these stimuli/bailout/tarp programs

Yes, you are right Dave, i don't know what these contracts said or how they were suppose to be paid.

And yes, when we bail out, we and the companies should make all contracts null and void and renegotiate them....

And companies that "pay" bonuses when their corporation has taken a free fall below worm level in the ground, has some rethinking to do in my opinion of how they structured their bonuses in the first place....it was NOT a financially sound business practice imo...

And it is not that i want the lower level people that were just doing their jobs take a hit, i would love to see them get what they agreed upon if it were possible, but I absolutely DISAGREE with any of the executives that had a hand in this mess or put a blind eye to it the last few years, not be getting their million dollar bonuses.....this is OUTRAGEOUS.

To save face, these execs should turn their bonuses down and return them to the business itself imo.

The AIG bailouts were NOT part of TARP as far as i know? This last $30 billion might have been but the one in september and the one in November were not, i believe.

September 17, 2008
Fed’s $85 Billion Loan Rescues Insurer
By EDMUND L. ANDREWS, MICHAEL J. de la MERCED and MARY WILLIAMS WALSH

This article was reported by Edmund L. Andrews, Michael J. de la Merced and Mary Williams Walsh and written by Mr. Andrews.

WASHINGTON — Fearing a financial crisis worldwide, the Federal Reserve reversed course on Tuesday and agreed to an $85 billion bailout that would give the government control of the troubled insurance giant American International Group.

The decision, only two weeks after the Treasury took over the federally chartered mortgage finance companies Fannie Mae and Freddie Mac, is the most radical intervention in private business in the central bank’s history.

With time running out after A.I.G. failed to get a bank loan to avoid bankruptcy, Treasury Secretary Henry M. Paulson Jr. and the Fed chairman, Ben S. Bernanke, convened a meeting with House and Senate leaders on Capitol Hill about 6:30 p.m. Tuesday to explain the rescue plan. They emerged just after 7:30 p.m. with Mr. Paulson and Mr. Bernanke looking grim, but with top lawmakers initially expressing support for the plan. But the bailout is likely to prove controversial, because it effectively puts taxpayer money at risk while protecting bad investments made by A.I.G. and other institutions it does business with.

What frightened Fed and Treasury officials was not simply the prospect of another giant corporate bankruptcy, but A.I.G.’s role as an enormous provider of esoteric financial insurance contracts to investors who bought complex debt securities. They effectively required A.I.G. to cover losses suffered by the buyers in the event the securities defaulted. It meant A.I.G. was potentially on the hook for billions of dollars’ worth of risky securities that were once considered safe.

If A.I.G. had collapsed — and been unable to pay all of its insurance claims — institutional investors around the world would have been instantly forced to reappraise the value of those securities, and that in turn would have reduced their own capital and the value of their own debt. Small investors, including anyone who owned money market funds with A.I.G. securities, could have been hurt, too. And some insurance policy holders were worried, even though they have some protections.

“It would have been a chain reaction,” said Uwe Reinhardt, a professor of economics at Princeton University. “The spillover effects could have been incredible.”

Financial markets, which on Monday had plunged over worries about A.I.G.’s possible collapse and the bankruptcy of Lehman Brothers, reacted with relief to the news of the bailout. In anticipation of a deal, stocks rose about 1 percent in the United States on Tuesday. Asian stock markets opened with strong gains on Wednesday morning, but the rally lost steam as worries returned about the extent of harm to the global financial system.

Feds Up AIG Bailout: 5 Things You Need to Know
November 10, 2008 12:05 PM ET | Luke Mullins | Permanent Link | Print

The Feds announced Monday that they were boosting the government’s bailout package for AIG to more than $150 billion, significantly greater than the original $85 billion lifeline Uncle Sam tossed the struggling insurance giant in September.

Here’s what you need to know:

1. AIG’s problems are in credit default swaps and securities lending. AIG on Monday reported a third-quarter net loss of nearly $25 billion. But the company’s big headaches haven’t been in its bread-and-butter insurance business, but rather in lesser-known lines. AIG is a big player in credit default swaps--which are essentially insurance contracts that pay out when a company defaults--and is also involved in securities lending. Turmoil in these two businesses have hammered AIG’s balance sheet, causing a severe liquidity crunch.

2. The original bailout was a punishment. Although the Feds stepped in to rescue AIG--while at the same time refusing to bail out Lehman Brothers--it did so in a punitive fashion. The original rescue package came with a painfully high interest rate of LIBOR plus 8.5 percentage points. That put pressure on AIG’s management team to sell assets quickly to pay it back. But such emergency selling--coupled with the chaos in the market at that time--meant that AIG could only command very low prices for the assets.

3. New Bailout is less harsh. The revised bailout package is much more favorable to AIG. First, the interest payments on the loans are cut from LIBOR plus 8.5 percentage points to LIBOR plus 3 percentage points, and the repayment period is extended from two to five years. “The restructured bailout should give AIG the flexibility to sell assets in an orderly manner for closer to their intrinsic values rather than fire-sale prices,” Robert Haines, an analyst at CreditSights, said in a report. At the same time, the government will be putting billions of dollars towards removing assets that had been at the heart of AIG’s troubles from its balance sheet (from its credit default swap and securities lending businesses). The Treasury is also taking a $40 billion equity stake in the company.

4. Actions could make repayment and equity appreciation more likely. The development saddles the government with even more exposure to a deeply-troubled company. But there is a possible upside, Haines says. The restructured bailout increases the chances that AIG will be able to repay the loan and puts the government in position to get a better return on its equity stake in the company. “I believe it ultimately is a better deal for taxpayers,” he says.

5. AIG development adds pressure for a bailout of automakers. The Democrats are already been pushing to expand the bailout to include aid for the nation’s struggling automakers. Look for lawmakers on Capitol Hill to use the government’s expanded bailout of AIG to further their argument that Detroit should get cash as well.

Feds Up AIG Bailout: 5 Things You Need to Know - The Home Front (usnews.com)

I agree, we probably made a huge mistake to take on the first bailout...now we are on a never ending road of bailouts to protect the initial bailouts!

sheesh....

Care

 

[WillowTree]

http://www.nytimes.com/2008/11/25/b...cp=5&sq=Timothy Geithner November 25th&st=cse




We have only two things to say about Tim Geithner, who we do not know: A.I.G. and Lehman Brothers,” said Christopher Whalen of Institutional Risk Analytics. “Throw in the Bear Stearns/Maiden Lane fiasco for good measure,” he said.

“All of these ‘rescues’ are a disaster for the taxpayer, for the financial markets and also for the Federal Reserve System as an organization. Geithner, in our view, deserves retirement, not promotion.”

Ouch.

“He was in the room at every turn of the crisis,” said another executive who participated in several such confidential meetings with Mr. Geithner. “You can look at that both ways.”

While Henry M. Paulson Jr., the current Treasury secretary, has taken a drubbing for the changeable nature of the government’s efforts to bolster the financial industry — some of which clearly contradicted each other — Mr. Geithner has managed, for the most part, to remain unscathed. He’s been widely praised as a bright, articulate out-of-the box thinker who is a bailout expert, to the extent anyone can truly be an expert at fast-changing emergencies.

Behind the scenes, Mr. Geithner was the point person for weeks of sleep-deprived Bailout Weekends. It was Mr. Geithner, not Mr. Paulson, for example, who put together the original rescue plan for the American International Group.

 

[editec]

Why on earth are we paying for a $6.5 million bonus? Plus all the other people's bonuses we're paying for. How can Obama get up in the morning, look himself in the mirror, and think: "Well, yesterday, I did a good thing. I gave one person a $6.5 million bonus. He sure must be happy."? These people are doing NOTHING to deserve these. And these contracts can easily be broken by doing one thing: not bailing this company out. Then all the contracts can be renegotiated. Doesn't seem that hard to me.

You seem to be missing the obvious here.

WHO do you think is screaming the loudest about these bonuses?

Obama is.

He's not happy about it, he's furious about it.

 

[Terry]

Do most of the Senator's have accounts with AIG or what? Who is their insurance company too?

 

[Care4all]

Most every retirement and pension fund out there, is tied in to AIG.

Not just government, but ALL.

 

[Terry]

source or something I can read? Sorry just woke up, late bloomer today.

 

[Care4all]

Why on earth are we paying for a $6.5 million bonus? Plus all the other people's bonuses we're paying for. How can Obama get up in the morning, look himself in the mirror, and think: "Well, yesterday, I did a good thing. I gave one person a $6.5 million bonus. He sure must be happy."? These people are doing NOTHING to deserve these. And these contracts can easily be broken by doing one thing: not bailing this company out. Then all the contracts can be renegotiated. Doesn't seem that hard to me.

You seem to be missing the obvious here.

WHO do you think is screaming the loudest about these bonuses?

Obama is.

He's not happy about it, he's furious about it.

me thinks he and the others KNEW 'that' ed....

 

[Ravi]

AIG is a separate bailout than Tarp, no? After the current contracts run out with the employees they can and should be renegotiated. From what I read there is the possibility that the employer promised something it couldn't deliver without the bailout money...so that may be one way to legally take away the bonuses.

I believe there have been three or four bailout payments to AIG and all but the first were from the TARP money. Of course new contracts will be negotiated when the current ones run out, and if AIG refuses to pay the going rate for financial executives, no doubt they will have to find new ones. I'm sure there are some middle management people who wouldn't mind jumping up to top executive positions even with contracts that were far below industry standards. Who knows? Maybe they will do better than anyone has thought they would.

I doubt there are any legal ways to take the bonus money away.

Much of the money AIG received - $173 billion, I believe - went to pay off contractual obligations, mostly credit default swaps, that we can now all agree should never have been made. Who in the future would want to do business with a company that can be forced by the government to back out of contractual obligations because of negative public opinion? Would you buy an insurance policy from a company like that?

Continually attacking the competence and integrity of large financial institutions will do more harm to our economy in the long run that all the bonuses that have been paid or will be paid. Most economists think Geithner's public-private partnership plan to revive secondary credit markets is nonsense and most agree that it will take $1 trillion to $2 trillion in new government money to deal with the bad assets that are clogging the credit system, but because cowardly and cynical politicians keep stoking public anger at the financial firms there is almost no possibility Congress will come up with that money. Bernanke claims that the recession will not end until we clear up this problem, so are these cheap shots at the financial firms helping or hurting the economy and the American people? When Obama and Frank and others rage at the financial firms, are they helping or hurting the American people?

I don't know the answer to that question. When Japan had all their problems wasn't a lot of it to do with pretending all the banks were solvent when they weren't?