I saw an article somewhere today titled “When Bonus Contracts Can Be Broken,” which I assume tried to explain to readers why AIG is giving out millions in contractual bonuses in a year when the company nearly went bankrupt and was part of a ripple effect that has majorly crippled the US economy.
But I didn’t click on it, even though I think I am probably their target audience. I don’t know anything about bonuses. I have never received a bonus, and neither has my husband, my sister, my mother, my father or my stepmother. If you’re a regular reader, you can guess why, but I’ll spell it out anyway.
Everyone in my immediate family is either a career teacher, a career public servant, or both. We don’t get bonuses– in return, the trade-off is supposed to be benefits and stability. But in a year when states are laying off workers, and in a climate when teachers are continually accused and undermined for trying to do their jobs in ludicrous conditions, that trade-off is looking less like a fair deal. Of course, we are also supposed to be secure in the knowledge that we are providing a public service to our great country, and not be remunerated for that service in a monetary style. We are idealists; we are above that.
So I am not really concerned with bonus law, because I don’t think I will ever get one. I’m just a teacher, after all. And I could say I was outraged or in disbelief about AIG’s seeming shamelessness and stupidity, but then, how could anyone feel that way after everything that’s happened recently?
I wouldn’t say no to a dividend check though, now that we own 80% of the company.
Oh, AIG saga continues. We are the less blessed, therefore we do not get a bonus.
A radical view on bonus – http://simplilife.wordpress.com/2009/03/17/pound-of-flesh/
I agree that when AIG is doling out our money, CEO bonuses should be very low on the list.
2 points, however:
1. These are bonuses that AIG is contractually obligated to….not arbitrary CEO bonuses that are being paid. Most companies that pay bonuses offer a lower salary than the competitive wage and pay bonuses to tie employees to performance. (So a person accepts 30k when she could earn 100k elsewhere and if she meets some criteria, she gets 70k.)
Congress knew about these and only when the public got a whiff of it did it become an issue. In fact, Chris Dodd wrote in a clause in the stimulus bill for AIG guaranteeing that these types of bonuses could be paid.
2. If they didn’t want AIG to pay these bonuses, then they shouldn’t give them billions of taxpayer dollars.
One more thing….
These bonuses are NOT squeaky clean….the performances they are tied to are not always that clear.
From Megan McCardle
“Barney Frank, however, uses the bonuses to make an important point: the compensation structure at all of these firms is seriously screwed up. Bonuses originally intended to encourage performance have morphed into deferred guaranteed compensation, for reasons that aren’t clear. That’s not necessarily a huge issue–except now, when the time-shifting leads to moral outrage. But the really pernicious problem is that the contracts are set up so that bonuses cannot be substantially cut if profits fall.
It’s not clear to me how contracts have come to be written that way–after all, they weren’t always handing out taxpayer money, and the big bosses who wrote those contracts were also sizeable shareholders in their firms. The result, however, is that all of the employees holding these sorts of contracts have vastly excessive incentives for risk taking. Perhaps some of them were taking big risks on the moral hazard of having Congress bail them out–but as Lehman shows, that was never a slam dunk. And I doubt a handful of these traders and money managers thought they were betting the firm. Most of them thought they were gambling on their own careers–just not very much of a gamble.”
I guess I worry about the precedent of government overriding contract.
That’s scary.
I thought these bonuses were “retention” bonuses, so they were not tied to company performance, but rather designed to keep valuable employees. I find that especially ironic since it was those employees involved in planting the ticking time bomb inside our economy– certainly not the only ones, but not without fault.
The changes are coming in hiring policies. Retention bonuses should be clarified, tieing them to performance as well.