What in the World Is AIG Thinking?
Andrew Cuomo is demanding answers. President Obama said today that he "choked up with anger" when he heard the news. The news media is up in arms. And now the Treasury Department says it plans to do whatever it can to block as much as $30 billion in government aid if AIG doesn't revert course and cancel the $165 million in bonus payments that it says it is compelled to hand out to company execs. Why in the world is AIG going ahead with the plan when doing so pretty much guarantees its reputation will end up ranking up there with Enron and Bernard L. Madoff Investment Securities?
AIG chief executive Ed Liddy claims the bonus payments were negotiated in 2008 and that as much as he finds them "distasteful," the company has no choice but to proceed with them since it's legally obligated to do so. He also says that AIG won't be able to "attract and retain the best and brightest talent" if employees "believe that their compensation is subject to continued and arbitrary adjustment by the U.S. Treasury."
No one outside of AIG has seen the contracts up until now to know for sure that there isn't a legal loophole that would give the company an out. But even if there wasn't a legal case to be made, would AIG employees dare sue the company if AIG decided to not pay them? Felix Salmon explains:
If AIG simply didn't pay the bonuses, would the employees of the financial products arm really fancy their chances in court were they to sue to receive them? It's possible that they would "win" such a court case—if by winning you mean having your picture splashed across every TV screen in the land as an exemplar of out-of-control greed and avarice. Which is why AIG could probably have quite a persuasive conversation with the AIGFP employees, along these lines:
"We know we promised you this money, but it's clearly politically impossible for us to pay it to you. So you're not getting the bonus you were counting on. Sorry about that. At this point, you have three choices. You can continue to work for us, and keep your job. You can quit, and find a better-paying job elsewhere. Or you can quit, and sue us for the bonus that we promised you. Your call. But if you choose the third option, you'll probably want to hire a PR person at the same time as you hire a lawyer."
So, basically, either members of AIG management are going to end up in handcuffs or a bunch of AIG execs are in for the humiliation of a lifetime, either way you slice it. But you can be pretty sure that Citigroup and Merrill Lynch execs are in a cheerful mood today. This AIG story is totally going to distract politicians for weeks!
