How can you give cash compensation to an executive, yet claim it is not a salary or bonus? You call it a “retention bonus,” No, I am not making this up.
Note that AIG chose to make this disclosure the day before Thanksgiving, clearly choosing a time when it would attract the least notice. Not that it really matters. The talk about restricting executive compensation to bailout recipients has been just that, talk.
From the Financial Times:
One day after announcing strict limits on salaries and bonuses for its top tier of executives, AIG revealed that some of those executives will receive millions in “retention bonuses” next year…
The retention bonuses for 130 key executives were disclosed by AIG in September, after the US government rescued the firm from bankruptcy by purchasing 79.9 per cent of the company for $85bn. After the government takeover, Edward Liddy, the former Allstate chairman, was named chief executive and AIG offered retention bonuses to Mr Wintrob, head of AIG’s retirement services division, among others….
The company announced on Tuesday that Mr Liddy would be paid a salary of $1 for 2008 and 2009, and that Paula Rosput Reynolds, who joined AIG as chief restructuring officer in October, would receive no salary or bonus for 2008.
The company said the other five members of AIG’s seven-member leadership group would not receive annual bonuses for 2008 or salary increases through 2009.
AIG also said that the company’s senior partners, about 60 executives, would not earn long-term performance awards in 2008, not earn salary increases in 2009, and that the group’s annual bonuses would be limited.
An AIG spokesman said on Wednesday that retention bonuses were different from the annual bonuses included in Tuesday’s statement. In September, Mr Liddy pledged to sell off significant portions of AIG’s international operations in order to pay back the government loan. The company said at the time that retention bonuses would be necessary to maintain continuity and value at various AIG units.
“Retention bonuses are a better alternative for the repricing of option awards so long as they are reasonable, fully disclosed and truly needed to retain talent,” said Richard Ferlauto, director of corporate governance and pension investment at the American Federation of State, County and Municipal Employees union.
“But in this market we don’t see much clamour for executives who made big bets, cannot make risk and were paid more than they are worth,” he added.
Do you really believe, with massive deleveraging and all sorts of big financial firms, including insurers, teetering, that AIG executives have great employment prospects these days? But the bigger issue, as far as I am concerned, is the misrepresentation, trying to claim that AIG was forgoing significant senior level comp, only to learn that they define terms a bit differently than the rest of the world does.
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Have a great thanksgiving Yves.
Thoroughly disgusting, Yves. I take it you’ve washed your hands. Thanks for the great site. First thing I’ve checked every a.m. since early Summer. Even though I have no right, nothing, please keep up the outstanding work. I’ve become dependent, eesh. Now back to brining that bird…
This bail-out was a bad idea from the get-go.
These are the same institutions that created new instruments just to get around SEC regulations.
Of course they are going to play word games.
Well catcus if the government had given me the over 3 trillion they’ve paid out so far I could have used that to build a space elevator to the moon…and a few launch loops too for redundancy.
how’s that for jobs and infrastructure?
Instead we give it to people who have no business handling billions of dollars because they’ve shown they can turn money and effort into nothingness through their stupidity and greed.
This is such bull&@#$!!!!! Treat those executives like everyone else and tell them if they don't like it, they can go find a new job! I'm really tired of these financial firms mollycoddling these stupid "higher ups" who were the ones who created this disaster in the first place!
If they can't hire a reduced salary with no bonus, then they should be given their walking papers.
Frankly, I would be thrilled to call them into a meeting, tell them they were being let go, and then explain to them how they could file for unemployment.
I’d enjoy doing it so much I’d be willing to do it for free.
AIG is one company that should have been allowed to fail, no matter how painful it would have been. It’s even more painful watching them take advantage of the situation every time you turn around.
Dining on the fruits of the earth or snouts in the trough; one of the same thing really.
Fox, henhouse.
One might say this is akin to defining what the meaning of “is” is, sigh.
It’s time to cut the cord on AIG.
An orderley sell off of the individual insurance business units (which by all accounts are perfectly viable businesses) with the proceeds going to pay off first, the government loan, second, any secured creditors, and then whatever is left going to unwind the CDS they wrote. If there’s not enough, then too f-ing bad. Word is that Goldman is on the other end of many of their CDS trades, and a blowup due to counterparty risk couldn’t happen to nicer people.
I know, I know, systemic risk and look what happened when Lehman was allowed to fail, and blah blah blah. Well guess what – the US government is systemically important and cannot be allowed to fail either, and quite frankly, it does NOT have the resources to bail out the entire financial system.
Tell Cassandra to make space for them in Gitmo. Is there any doubt that she was right?
It’s systemically important that these failures, fail. Otherwise we all lose hope and confidence in the system and realize clearly that we are just slaves. What could be systemically more important than that?
The “confidence” that leaders want us to have is more like what the military calls “morale”.
That is, a healthy enough fear of your own officers that pushes you forward into the enemy’s bayonets.
What is needed here is a mutiny.
Can someone find a way to publicize the photos of these people? And, be sure to photoshop the images to include a $ on their foreheads.
business divestiture money for management retention. one has to wonder whether the business or the executives are worth more for a corporation.
They either don’t “get it” or they simply don’t care. One is the height of disconnect and the other is the epitome of King Charles’s attitude of servitude rightfully fits us peasants. 1776 all over again it seems it’s going to take. I say off with their heads.
Somebody has to do something. There needs to be a revolution that will restore something that we had about a hundred years ago. Where government intervention means things like anti-trust laws. There needs to be a revolution. I don’t think that Americans get how bad it is. Even those who wrote letters when the TARP debates were going on. I fear for the future of America.
Yves,
You seem ideally suited to being a small town banker in a Norman Rockwell painting.
How did you ever come to stay in this disreputable business of NYC investment banking? Who was the seducer who first misled you off the path of virtue?
GITMO for these people sounds better and better. Let’s call it a “detention bonus”.
This is exactly what Lucent did in 2001/2002.
“The “retention payment plans” approved by Lucent’s board were designed to keep the executives on through the company’s difficult restructuring period. They were detailed by Schacht in letters dated December 3, 2001. According to the terms of those letters, Holder and O’Shea will now receive retention payments equal to two-times base salary and annual target bonus — $4,500,000 and $3,080,000, respectively. The executives, who each hold more than 2,500,000 shares of Lucent stock, also were given the opportunity to exercise all their stock options on the award date — April 22, 2002, or the employment of a new CEO, whichever came first.
Four months isn’t a long time to wait before quitting, but that period was dramatically compressed when, on January 7, Russo arrived.”
I remember that Ben Verwaayen, despite the retention bonus, announced in December 2001 he would leave Lucent to become CEO at British Telecom. Since on January 7 he was formally still employed at Lucent, he still got his retention bonus.
Lucent shows us what kind of people we are dealing with. But that case was the business of the Lucent shareholders.
This is the business of all US citizens.
Anon of 12:34 PM,
Great tidbit. And Lucent went from over $80 a share in late 2000 to under $5 2002.
Does AIG mean to tell us that their exalted executives have no competent underlings who would take job promotions in a heartbeat?
What a joke!
When will the American taxpayers storm the AIG castle and make organ donors out of each and every one of the AIG executives?
why would you want to keep these stupid bastards? besides, in this climate, where would they go?
It’s truly amazing how many people appear to have slept through the French Revolution when it was taught during world history.
It’s truly amazing how many people appear to have slept through the French Revolution when it was taught during world history.
That’s what remedial education is for.
since the opinion is so unanimous on this site, i can't resist taking the other side.
if society thinks that corporate executives are making too much money, the way to address the issue is through the tax code, not by trying to micro-manage compensation levels at individual companies (or within entire industries).
this entire sorry episode is making or country look like a freaking banana republic. banning short selling? buying 'troubled assets'? giving favored financial institutions preferred stock at below market rates? allowing barney frank and andrew cuomo to try to regulate executive compensation down to the $200,000 level? "forcing" banks to lend in the early innings of a steep economic downturn?
most of the steps that have been taken in response to the crisis are ridiculous. as bad as the problem in the financial system has been, it could have quickly & easily been dealt with via the bankruptcy process. instead, we're making things worse through these ill conceived attempts to deny the rebasing of asset prices.
i'm not sure who's worse: the bankers who created this mess; the regulators (greenspan, et al) who allowed it to happen; the regulators who are trying to clean it up (bernanke & paulson); or the politicians who are trying to take advantage of it to push their populist agenda (frank, cuomo, obama).
I’ve heard the rank-and-file at AIG have already gotten such “retention bonuses” / “retention increases”, amounting to some 20%. Anyone have more details on this?
With the current complicity of our elected officials in actively funding such socialized costs as “retention bonuses” for AIG execs through burgeoning taxpayer giveaways to US elites, its time to change our national bird to the Turkey.
Happy T-day Yves.
Anyone who thinks the bailouts will do more than feed more money to the rich deserves to being called turkeys.
Bondinvestor is right. Nationalization of AIG was the way to go.
But is a society that has accepted and embedded into the political apparatus, the concept of financialization as THE way to grow the economy, is it surprising that the rebasing of assets is considered an heresy?
Apparently not.
As for using the tax code to address "excessive" compensation, this went through the window since the Buckley decision by the SC. "Money is free speech, so if I got plenty of it, I can talk and convince/bribe the politicos of fantasies like the trickle down the losses and trickle up the profits. Tough titties for those who don't have the dough.
After re-reading Wealth and Democracy by Kevin Philips, I can't be surprised that theses bailouts have been such a mega-clusterf*&k.
Tell Me; Where is the incentive to *not* pillage the place on the way out?
All the AIG executives have to do is to ask the FED for some more funding and it will be given!
They belong to our new overlords of The Entitled People.
But wasn’t I the same bastard, who stood in awe when these same mothers came in their limo’s and their swivel chairs asking them for a job in their businesses?
Executive pay is the bubble in all of this. How say you about the burst and when?
When is this unending looting of shareholders going to stop?
I’ll answer that –when every public corporation in the world left standing is trading at below 5PE for the fraud that has been made of this market.
Remember, the PPT was established in the aftermath of 9/11 in an opportunistic act abolishing free market principles for criminal manipulation of the stock market.
Don’t forget the Supreme Court has ruled that corporations (corporate executives) have the human right to contribute unlimited amounts of money to political issues and to elect candidates.
Don’t forget that the Supreme Court ruled that human rights includes the right to bear arms -setting no limits on which arms.
Don’t forget the end of habeas corpus and posse comitatus with the right to declare martial law for “anything” judged to be an emergency by the TPTB has coincided with the human right of corporate executives to the unending persistent looting shareholders.
Don’t forget Verizon’s Freedom Plan signaling the end of any meaningful use of the word.
How could 3 guys arrive at a Congressional beggar’s banquet on 3 individual private jets? They own the government -why shouldn’t they?
I’m still a little confused…
These guys deserve all this money because they are the “smartest guys in the room”. Yet they couldn’t see this credit train wreck coming at them. Must be a very small room.
this is ridiculous retention bonus b—s–t if they want to leave let them leave there has to be enough talent in this country to replace anyone who would leave
How about you learn what your talking about. The economy relies on AIG more than most could ever imagine. Just get over yourselves, its people like you that pull your money out of the stock market and force it to crash if you’d just let shit ride out we’d all be alot better off.
That sounds like extortion. And we are all supposed to be chumps when the fundamentals of the economy goes to hell and keep our money in stocks while the savvy operators pull out. Markets exist to server investors, not vice versa.
Mr. 10;07 thinks the rest of us exist to serve him and by extension AIG. AIG has been badly mismanaged and is now a ward of the state, and you all really ought to be on government pay scales. Get over yourselves, or if you are really as brilliant as you clearly think you are, why don’t you try getting another job and see what your market value really is.
10:07, we also depend on sanitation workers more than we imagine.
and i assume your worth is as much? all i’m saying is know the company your talking about its a trillion dollar umbrella with over 200 companies under the AIG title. Obviously some of the companies failed miserably and are not worth a penny (and were driven by greed), however there are plenty of others filled with hard working executives who are innocent bystanders and are worthy of their job.
and if it services investors, why would play the game in the first place?
i find a lot of what you people are saying to be very troubling….my dad happens to be one of the 60 senior partners at AIG, and simply based on this fact is lumped into this group of disgusting criminals who have run AIG into the ground because of greed. AIG’s trouble is largely based on the investment decisions of one AIG company located in London. My dad’s line of business has absolutely no link to that and he has stood by helplessly as a large portion of his net worth has eroded before his eyes. He has worked 12 hour days at AIG for 23 years, and he doesn’t deserve a bonus??? To this day he still leaves the house before seven and is back after seven…do you have any idea how hard it is to do business with AIG’s credit rating being downgraded? Oh yea, and my dad did have other job offers, but he turned them down and opted to stay at AIG because as the president of a wholly owned subsidiary of AIG, he felt obligated to stay and protect the jobs of the people who work under him. i think that before people start going off about the bad people at AIG they should learn about exactly why AIG is in such a bad spot and also recognize that it is a company of more than 100,000 people so not everyone is a greedy asshole.
This is sick. Why in the world are we helping these companies that keep sending millions to people who do not know how to run a company? Furthermore, I fear this is just the tip of the iceberg. Look what Enterprise rent-a-car did to get bailout funds:
http://www.butasforme.com/2009/02/25/alert-enterprise-rent-a-car-may-have-fired-employees-as-fake-evidence-when-lobbing-for-bailout-money/?
This is sick. Why in the world are we helping these companies that keep sending millions to people who do not know how to run a company? Furthermore, I fear this is just the tip of the iceberg. Look what Enterprise rent-a-car did to get bailout funds:
http://www.butasforme.com/2009/02/25/alert-enterprise-rent-a-car-may-have-fired-employees-as-fake-evidence-when-lobbing-for-bailout-money/
@ Anonymous: I respect your opinion, but your dad is not working any harder than THOUSANDS of other people do every day. I’m a public defender and I routinely work 10-14 hour days. I leave at 7, I’m at work until 7, and I come home and prep for court until 10 pm- EVERY DAY. I do this for A LOT less than your dad- I make less than $50,000 (with over $100,000 in student loans to pay) a year and actually had to take a PAY CUT this year because our organization has no money. And I stay at my job because I care about our clients, the same is true of my co-workers. And although we are the ONLY public defenders in Philadelphia and our organization is in debt, we’re not getting any bailouts or bonuses!
With all due respect, there are thousands of people who work as hard- and much harder- than your dad does, for a lot less money. At least your dad actually HAS a net worth, that’s a foreign concept to a lot of people.
I’m pissed off at AIG too http://tinyurl.com/d3n38o
This is sickening. I Million dollaw bonuses? Wow …just wow!
I have health problem…I’am a mother of 4 children’ low income’and in need of help, i work but not enough…and ive never even held $10,000 in my life. How sad and greedy they are.