Should AIG executives be forced to return bonuses paid with federal bailout money?

Yes

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by Don Patrick Amarasinghe

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The American International Group (AIG), the 18th largest public company in the world with an investment of US$ 712 billion, and estimated 74 million customers world wide, operating in 134 countries, and world largest property casualty insurer reported largest corporate lost of US$ 61.7 billion for the fourth quarter of 2008.The company suffered a heavy liquidity crisis since September 2008, following a downgrading of its credit rating. The company has received US$170 billion of bail-out money to overcome its liquidity problems.

It is immoral that the company has decided to pay US$165 million as bonuses to its executives. It has been estimated that the total bonus pool could be increased up to US$ 450 million. It has been said that 76 AIG employees received bonuses of US$ 1 million or more each, seven of them more than US$3.5 million each.There is no argument, that these recipients are not entitled to a huge sum of bonuses as has been paid by the AIG. The company has two arguments. The first is that these payments would motivate the executives to work hard and to get over the current problems. Second, is that the bonuses have to be paid according to the contractual obligations. The company also argues that it might cost more to re-write those contracts if the contractual obligations were violated. Public has no idea about these contracts and a question of transperancy can be raised about the activities of this company. On the other hand, the basic premise of a bonus system is to provide incentives to whom the participated in success stories in a venture. How the bonus payments could be justified when a company is in a crisis? As one politician expressed, it is an "incentive for incompetence." President Obama said that it is a question of our fundamental value system. Congressmen from both parties have expressed their opposition to the payment of bonuses and amounts the AIG has commited.

Further, AIG's CEO, Edward Liddy says that he cannot retain best talented professionals if these bonuses were not paid. If they are the best, how could this giant company fall to a situation today? Is there any possibility to terminate their contracts, and even to think about importing less costly, perhaps, better professionals from other countries?

It should also be noted that the company exposed to various financial frauds since 2001, as Cesar Balbin, one of its claimant and a share holder first revealed them. These frauds include, but not limited to criminal and civil racketeering activities including extortions, fraud claims, fictitious balance sheets, theft of company property and so on. A recent interview with former New York Attorney General, Eliot Spitzer said that, the AIG had involved in fictitious insurance contracts, and had inserted wrong numbers into the company balance sheets to show the company was financially strong. Former Chairman and the CEO Greenberg, who claimed a lost over US$ 2 billon of personnel investment, sued the company, and said in an interview with the SNBC, on March 2009, that the AIG did not have proper people in place to run the company. AIG is currently facing investigations by the New York Attorney General Office, The Federal Bureau of Investigations, the Securities and Exchange Commission, and the British Serious Fraud Office. Frauds inhibit proper free market factor operations. As to these evidences AIG's crisis seems imposed from inside the company for a long time, even before the external financial market factors affected the company's fall. Why American tax payer is not properly informed about what happened inside before they were given a bail-out?Congress should take action to stop bonus payments completely, and ask them to return the money they had been paid, until these investigations are completed, and decide who should be paid, and who should be not.

Above all, most of the tax payers are struggling to live in these financially hard times. They cannot balance their monthly budgets, can pay only half of the monthly utility bills, loaded with increased credit card debts, and forced to refrain, or postpone buying some of the consumer items they have used to consume. Individual tax payers have not been given any bail out yet, as igiven in the last year. If this is the meaning of the term "shared sacrifice," why not financial giants in AIG, and any other big companies for that matter, reasonably participate in this honorary endeavor of shared sacrifice by returning what they received for the tax payers benefit.

The public money belongs to the tax payers, that should be spent for the benefit of the hard working people of this country, not the greedy rich.The AIG, the largest property insurer in the world seems to have not properly run by its self-interested managers, and cannot be claimed as efficient, and effective. The company has been in full of frauds until recently, as reported by various media. Who can justify paying millions as bonuses when a company is falling apart? The Congress need the attention on these issues, and limit bonus payments, or stop payments at all in some cases,and in some cases force them to return what they have received as (un)fair bonuses.

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