Government Leaders and Taxpayers Alike Cry “Foul” Over AIG Bonuses

For the average taxpayer, it is difficult to comprehend how such large sums of money can still make it into the hands of those who do not deserve it at all, and in a way, even helped to create this financial crisis in the first place.

While perhaps hundreds joined the ranks of millions of jobless Americans or those in danger of losing their homes last weekend, a select group of people on the other hand, 73 of them to be exact, received at least $1 million in bonuses.

Initial Reactions

When news that besieged insurance giant American International Group, Inc. (AIG) was giving away about $165 million in bonuses for about 400 employees first broke out a few days ago, the White House, members of Congress, and hundreds of thousands of taxpayers rose in collective disbelief and indignation. Many called the move simply “ridiculous”, and the President said the payments were an “outrage”.

Republican Senator Charles Grassley of Iowa even went as far as giving out this message to AIG executives: “Resign or commit suicide”, as the Japanese would do when owing up to responsibility. He later backtracked and said that the reference to suicide was mere rhetoric, and that he simply meant that these employees who received tax money for bonuses showed utter irresponsibility.

The AIG Bonus Figures

Here is a rundown of the numbers involved in the AIG bonuses as provided by the office of New York Attorney General Andrew Cuomo:

• Top recipient got more than $6.4 million.

• Top seven recipients got more than $4 million each.

• Top ten bonus recipients received $42 million combined total.

• Some 22 recipients were given more than $2 million each, putting the combined figure at more than $72 million for these 22 individuals.

• Another 73 individuals got at least $1 million each.

• Curiously enough, 11 of these “employees” who got “retention” bonuses no longer work for AIG. Ten of them got more than $1 million, while one got $4.6 million.

Why These Infamous Bonuses are Questionable

Various reasons can be cited as to why AIG was in no position to release such huge bonuses, or any at all.

First, AIG received more than $170 billion of the government’s TARP or bailout funds late last year. That’s the biggest chunk that any single financial institution got, and because of this, 80% of the company is now owned by the government. Despite this assistance, AIG nevertheless posted a $61.7 billion loss in the fourth quarter of last year.

As if adding further insult to injury, most of the bonus payments were given to employees of the company’s Financial Products Division, the very same unit which lost AIG so much money and brought it to the brink of financial ruin, if not for the government’s bailout money. But now these people are being given retention pay to prevent them from going out of the company – a move that political leaders, much more the tax paying public, cannot even begin to fathom.

Possible Counter Measure

Government-appointed CEO of AIG Edward Libby says that while he finds the whole arrangement “distasteful and difficult to recommend”, legally “AIG’s hands are tied” because these bonus contracts have been entered into during the first quarter of 2008, long before government money came into play, and the company has no choice but to pay up on these obligations.

Members of the US Congress beg to differ however, and are considering drastic moves to recoup the millions paid out in bonuses, if renegotiation of the contracts is not made.

Many are incessantly calling for these executives to at least see the lack of a sense of responsibility on their part to accept such bonuses in the face of the changed circumstances and just return the money. Some senators though, are taking more concrete steps such as exploring the possibility of imposing steep taxes on these bonuses, maybe even as high as 91%.