It’s An OutrAIG!

Ah, the bailout follies continue.  In the past few days, we’ve been hearing about how “insurance giant, AIG,” has supposedly misused the bailout funds given to it by the government (aka, you and me), paying out a ton of money to foreign banks, and millions in executive bonuses.  If you hadn’t heard, President Obama himself called the bonuses an “outrage,” and now members of Congress are following suit.  You know, when the word “outrage” gets thrown around by politicians, that the BS will be coming pretty thick.  I hadn’t posted on this subject before now, because I had a feeling we weren’t hearing the whole story.

First of all, specific language was intentionally added into the bailout bill, by Senator Dodd, to allow the recipients of the funds to pay out bonuses for which they were contractually obligated.  Second of all, the bonuses in question, at least in AIG’s case, are not performance based — they’re something called “retention” bonuses (which I learned from the linked AP article) and are used to keep highly-valued employees from jumping ship.   I know that past employers of mine did offer bonuses that were not wholly based on the performance of the company, and I suspected that might be the case here, too.  Basically, depending on the position, employers often include a guaranteed “bonus” as part of the overall compensation package.  The money is essentially the same as salary, though my guess is that it’s kept separate to allow for some flexibility.   So, going into the year, the employee knows that he will be paid X dollars in salary, plus Y in a guaranteed bonus, plus perhaps a potential extra percentage based on a formula that takes performance into account.  So, all of those politicians screaming that AIG should not have paid these bonuses are basically saying that AIG should not be paying employees their full salaries.

But the government has been giving out these bailouts so that companies such as AIG can meet their financial obligations and not have to file for bankruptcy.  As I understand it, the outrageous AIG bonuses are exactly that — a contractual financial obligation.  I don’t for a second believe that the furious politicians do not understand this (which is probably why they were not outraged when the bonuses were first disclosed, months ago).  What they’re seeing here is an opportunity to deflect some of the anger that has been directed at them for pushing these bailouts though in the first place, toward some convenient bogeymen — the evil corporate execs.

Should the government should have bailed out AIG (or any other company)?  Had AIG been forced to file for bankruptcy protection, they would have been able to modify or eliminate the very bonuses at the center of all the current furor.  Attempting to shift the focus by demonizing them now, for not doing something that violates their contractual obligations to their employees, is what’s really outrageous.

UPDATE (3/18): What I did not mention is that the press has been complicit in this phony outrage.  Even in a story about the AIG CEO explaining to Congress that the bonuses were required, Reuters neglects (refuses?) to make clear that the bonuses have nothing to do with performance.