Explaining AIG Bonus-Gate
The CEO of AIG, Edward Liddy, faced an irate House Financial Services subcommittee yesterday to explain why the troubled company recently paid out more than $165 million in retention bonuses to its executives.
By Christy Harvey, Mic Check Radio
March 18, 2009
(Photo from The Wonk Room)According to details made public Tuesday by New York Attorney General Andrew Cuomo:
-The anonymous top recipient received $6.4 million.
-The top ten bonus recipients received a combined $42 million.
-The top 22 recipients each received $2 million or more, for a combined $72 million.
-In all, 73 recipients received retention bonuses of more than $1 million each.
-Of these, 11 people took their retention bonuses and then left the company. [ABC News]
Know Five Things
1. AIG Response This Week
CEO Edward Liddy testified in front of a House Financial Services subcommittee yesterday about the massive retention bonuses given to AIG employees. Liddy said, “Specifically, I have asked those who received retention payments of $100,000 or more to return at least half of those payments.” In a Washington Post op-ed yesterday, Liddy also said, “In all, total 2008 compensation for the top 47 executives is 56 percent lower than their total 2007 compensation. My annual salary is $1. … To prevent undue risk exposure in the meantime, AIG has made a set of retention payments to employees based on a compensation system that prior management put in place.” [Washington Post]
2. AIG Response Then
In November, Liddy sent a letter to New York Attorney General Andrew Cuomo saying, “AIG is mindful that it must act prudently and, as such, must impose curbs on executive compensation. … To meet these objectives, AIG’s top seven executives (Leadership Group) will receive no annual bonuses for 2008. In addition, the top roughly 60 executives (Senior Partners) including the seven most senior AIG executives, will forgo any salary increase through 2009 and their 2008 and 2009 bonuses will be restricted. [Think Progress]
3. Lower Taxes On Bonuses
An analysis done by the Wonk Room found that, under the tax system put into place by the Bush administration, these traders were able to take home an additional $7.5 million from their bonuses than they would have in the 1990s. “In 2000, this $165 million would have to have been taxed at 39.6 percent (the top marginal tax rate for top income earners that prevailed through the 1990s). Now, thanks to the Bush tax system, they’re only paying at 35 percent and saving themselves over $7.5 million.” [Wonk Room]
4. The White House
When asked about the AIG bonuses Wednesday, an angry President Barack Obama told reporters, “Ultimately, I’m responsible. I’m the President of the United States…The buck stops with me.” Obama was equally angry back in October, after AIG was caught sending execs on a luxury junket just days after accepting bailout money. “In fact, we just found that AIG — a company that got a bailout — just a week after they got help, went on a $400,000 junket. I’ll tell you what. Treasury should demand that money back, and those executives should be fired.” [Bloomberg] [Think Progress] [San Diego] [CNN] [Science Daily]
5. Congressional Hypocrisy
This week, many lawmakers are changing their tune on government involvement with the companies receiving taxpayer money as part of the massive bailout package. Popular Today: Sharing thepublic outrage over the AIG bonuses, demanding more government involvement. Popular Before: Blocking limits to executive pay in these companies, demanding no government involvement. Here’s a sample.[Washington Post]
- Now Senate Minority Leader Mitch McConnell (R., KY), 03-15-09: “Well, it is an outrageous situation. I wrote Secretary Paulson back in October complaining about the way AIG had been doing its business. […] This is an outrage.” [ABC News]
- Then McConnell, 02-04-09: “I really don’t want the government to take over these businesses and start telling them everything about what they can do. […] We have to resist the temptation to basically dictate to these businesses how to run every aspect of their operation.” [ABC News]
- Now Senate Banking Committee ranking member Richard Shelby (R., AL), 03/16/09: “We ought to explore everything that we can through the government to make sure that this money is not wasted. […] A lot of these people should be fired, not awarded bonuses. This is horrible. It’s outrageous.” [AP]
- Then Shelby, 09-23-08: “It should be up to the board of directors of a private corporation to set the compensation of an executive; it shouldn’t be Congress’s role.” [Washington Post]
- Now Sen. Kit Bond (R., MO), 03-18-09: “It’s unacceptable to pay bonuses after the American taxpayer was forced to bail out an institution without reforming it.” [KRCG]
- Then Bond, 02-02-09: “The worst thing we can do is tell businesses how to run themselves. Congress has a pretty bad track record. If you you look at our collective judgment, all 535 of us in our wisdom can’t run government very well. (We) sure can’t run business.” [STL Today]
- Now Sen. James Inhofe (R., OK), 03-17-09: “The AIG situation is clear evidence of what happens when you shovel money out the door with no strings attached and no transparency.” [KTUL]
- Then Inhofe, 02-06-09: “I thought, is this still America? Do we really tell people how to run [a business], and who to pay and how much to pay?” [Huffington Post]
Read Additional Resources
“ANALYSIS: Current Bush Tax System Saves AIG Traders More Than $7.5 Million,” Ben Furnas, The Wonk Room. 03-17-09. [Wonk Room]
- Excerpt: “...According to our analysis, thanks to the Bush tax system, these traders are taking home $7.5 million more then they would have in the 1990s…”
“Why AIG Bonuses Make The Case For Nationalization,” Pat Garafalo, The Wonk Room. 03-16-09. [Wonk ROom]
- Excerpt: “...even with 80 percent of the company owned by the government, Geithner is powerless to do anything other than pressure AIG to rescind the bonuses. Nationalization, meanwhile, would mean outright control over the hiring and firing of executives and the payment of bonuses and dividends. Treasury wouldn’t have to try to coax or embarrass institutions into voluntarily cutting back…”
“Our Mission at AIG: Repairs, and Repayment,” Edward Liddy op-ed, Washington Post. 03-18-09. [Washington Post]
- Excerpt: “I have seen the good side of capitalism. But over the past six months, since agreeing to take the reins of AIG and reviewing how it was run in prior years, I have also seen instances of the bad side of capitalism. Mistakes were made at AIG, and on a scale that few could have imagined possible”
“The Case for Paying Out Bonuses at A.I.G.,” Andrew Ross Sorkin, New York Times. 03-16-09. [NY Times]
- Excerpt: “I have seen the good side of capitalism. But over the past six months, since agreeing to take the reins of AIG and reviewing how it was run in prior years, I have also seen instances of the bad side of capitalism. Mistakes were made at AIG, and on a scale that few could have imagined possible”
“The Real AIG Scandal,” AEliot Spitzer, Slate Magazine. 03-17-09 [Slate]
- Excerpt: “...From raising taxes—income taxes to sales taxes—to properly reopening labor contracts, we are all being asked to pitch in and carry our share of the burden. Workers around the country are being asked to take pay cuts and accept shorter work weeks so that colleagues won’t be laid off. Why can’t Wall Street royalty shoulder some of the burden? Why did Goldman have to get back 100 cents on the dollar? Didn’t we already give Goldman a $25 billion capital infusion, and aren’t they sitting on more than $100 billion in cash?...”
“Another AIG Resort ‘Junket’: Top Execs Caught on Tape,” ABC News, 11-10-08 [ABC News]
- Excerpt: “...Even as the company was pleading the federal government for another $40 billion dollars in loans, AIG sent top executives to a secret gathering at a luxury resort in Phoenix last week…”
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(D)Chris Dodd AIG admission: Senator says he helped adjust bill to allow bonuses
www.chicagotribune.c…
— Bob Smith - Mar 19, 05:17 PM - #( Excerpts of an Open letter to the 44th President of the USA, that includes all the traditional perfunctory respectful greetings ,congratulations ,that have been cut ( after much deliberation but without hesitation ) to save paper in a bid to promote environmental issues etc etc etc…. )......(many paragraphs down after all the perfunctory respectful greetings etc etc etc )....
“......Now I can ask you if all is fine with you that you now the 44th President of the USA ? I guess it is . Nice to be famous and be President of the USA. Who wouldn’t be happy. But as you know the high office comes with great respectability ,responsibility, and accountability . But that is not I want to talk about now.
I just want to cut to the chase and say that all is not well with a lot of people that put you in the White House.
People are so upset and want to know why they should buy a lottery ticket when all they got to do to be a millionaire is join some mismanaged financial institution like AIG that loves to spend and waste tax payers money ?
Eating caviar and riding a limousine and staying in five star hotels and motels and five star restaurants just looking good and eating fine and smiling every week all the way to the bank …that sure is a good job that folks need right now.
Seems like according to media coverage that quite a number of footloose fancy free mealy mouthed stupid grinning camera loving politicians in the Congress appear to be getting rich from pork belly financial kick backs from who knows where whilst tax paying folks are watching for some politician with a back bone to clean up the mess. Well , no problem the media is gonna sniff out those sleasy eyed politicians that like to grin in the camera looking stupid like a Cheshire cat that just finished licking the cream off their whiskers .
My old head teacher used to say “....a person can lie 99 times but the hundred time they sure gonna get caught…..”. Seems like some of the politicians smile in the face of the camera but behind the camera they trying to drop the ratings of the Administration right quick cause as far as they concerned they can lie through their teeth and look square in the eye of the camera and pretend that they are just doing what is best for the Administration .
Sad thing though is that it looks like these nameless people hiding in the shadows wanna sink the popularity of the Administration faster than water going down the toilet. Pardon me but it sure looks likes this Administration got enemies that are pretending to be friends.
Not everyone that says they are your friend is your friend and not everyone you think is your enemy is an enemy.
This Budget Bill or whatever talking about trillions of dollars etc and probably loaded with too much pork coming up is a sure elevator to drop the ratings of the Administration almost through the floor,why I don’t know.
Just seems that the honeymoon is over. Looks like mudslinging time and kitchen sink strategy may be camping in your front yard to mock and bite your Administration and upset the 2012 reelection plans.
I know some say the honeymoon lasts about hundred days , but it looks like it is already over . Don’t believe me but ask Jay Leno or those other comedians that I see you, Mr. President of the USA laughing your head off with just the other day- yeah you ask comedians like Jay Leno why ordinary folks are not happy with the way politicians waste the hard earned money of honest taxpayers and people that have been paying taxes and now have no job.
Sounds like I may be ranting but so what, let me rant on behalf of the forgotten tax payer that demands a public apology for this Administrative hiccup.
Ordinary folk that just want to work and earn an honest day pay and pay their taxes and do their bit for the good of the country are sick and tired of so much nonsense going on in those behind the closed door meetings.
All these nonsensical public speeches delivered with robotic precision, people are tired of pie in the sky trash. Less talk more action. Pardon me, but people want to see more credible leadership and less showmanship. More honesty, humility and integrity, good leadership qualities that you sure have and that people would like to see more of.
Problem is you are the 44th President and looks like some folk just dropped what appears to be a proverbial bucket of AIG sewage on the red carpet that you supposed to walk on.
People ain’t got respect for thieves and tax paying cheats. And people don’t want people to mess around with their constitution, their family ,their property and their dreams.
Thank you for your time. Mr . President…..( Closing paragraphs of traditional perfunctory gratitude speech etc etc etc blah blah blah etc etc….).....”.
— Errol Smythe - Mar 23, 04:53 AM - #