by Don Patrick Amarasinghe

Created on: March 26, 2009   Last Updated: April 02, 2009

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

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