AIG Proposes to Pay the Guilty Hundreds of Millions in Bonuses! CEO Claims he Has a Contractual Obligation to Pay!
I don’t have the benefit of reading the employment agreements of the people that bankrupt AIG, but it is hard to understand how they had the authority to bet the company.
Company’s many times make very bad decisions when they write compensation agreements. I’ve seen companies that allow the sales force to negotiate the prices of contracts for goods and services, and then pay the sales team a commission based upon the price negotiated, without regard to whether the company makes any money, or even losses money in the transaction. That is bad long term strategy.
Back to AIG. AIG agrees to pay bonuses. BUT, the employee has obligations also. Surely the employees have limits on their authority; surely AIG does not pay people to take actions beyond their authority; surely AIG did not give this small group the authority to bet the company! Or did it? I doubt it. Betting the company is a policy decision for the board of directors, not any employee.
I think the answer is simple.
First: AIG – you don’t pay people for taking risks with the company's money and assets that was beyond their authority. That is called a breach of contract. The fact that they made money for several years does not make it OK. If they made money by robbing banks would AIG pay the bonuses?
Second – Since they were likely acting beyond their authority and misusing company resources, AIG should also demand the return of all previous bonuses paid for their performance to the extent it was related to sub-prime mortgages, credit default swaps, underwriting toxic assets or misusing their authority as employees.
If the employees sue for their money – they need to show they were acting within company policy and guidelines, and within their authority. They should also receive a counterclaim for the return of all prior years bonuses.
AIG needs to talk to their attorneys! And, the employees that acted outside their authority should be fired.
Finally, if the employees in this part of the business had the authority to do what they did, then the managers, executives and the Board of Directors that allowed this transfer of power must be held accountable. Their compensation and bonuses must be withheld. they should be fired, and the company should look to them to recover there previous bonuses.
This is especially true for the Board of Directors. Ultimately the Board is responsible and they clearly were not meeting their obligations to the shareholders, nor exercising the judgment one would expect.
