The AIG bonus story just keeps getting better
Ordinarily I hesitate to give New York Atty. Gen. Andrew Cuomo any extra publicity. I mean, he gets more than enough of it already. But Tuesday afternoon he released a letter to Rep. Barney Frank (D-Mass.) about the recent American International Group bonuses that is so chock-full of tasty info morsels, I just have to give the man his due. (Optional reading: Tom Petruno's blog post on the letter, and The Times editorial on the bonus controversy. You should also look for an Op-Ed article on this subject Wednesday by columnist Tim Rutten.)
I'll leave to others the parts of Cuomo's missive that were designed to incite class warfare (e.g., "last week, AIG made 73 millionaires in the unit which lost so much money that it brought the firm to its knees"). I was more interested to learn that, according to the documents Cuomo's team collected, AIG agreed in its employment contracts to provide at least as large a bonus in 2008 as it did in 2007 to members of the ruinous Financial Products unit. Now that's what I call paying for performance! Twice. (Or maybe more often; who knows how long that provision has been in the contracts.) The letter also revealed that 11 of the 73 employees who received "retention" bonuses of $1 million or more were no longer, um, retained. They'd already left the company. The same was undoubtedly true for many of the other 300-some who received bonuses of less than $1 million. Finally, Cuomo noted that AIG had renegotiated the contracts with Financial Products employees, persuading them to accept essentially no salary in 2009 in exchange for receiving their bonuses. So much for being locked into a deal signed prior to the government's takeover.
I'm usually sympathetic to the argument that cracking down on bonuses and salaries can drive off the most talented revenue generators at troubled firms. But not in this case. AIG shouldn't be paying retention bonuses in its Financial Products unit because it shouldn't have a Financial Products unit. That subsidiary blew up the company. Like a surgeon excising a tumor, the government should be separating that particular venture from AIG's healthy and well-capitalized conventional insurance businesses, then making it go away.
Credit: AP Photo / Mark Lennihan