Can those AIG bonuses be stopped?
President Obama wants to stop AIG from handing out bonuses to executives who nearly drove the firm to bankruptcy. But AIG says its hands are tied because of legally-binding contracts. Steve Henn reports.
President Obama announces that he asked Treasury Secretary Timothy Geithner to use all legal tools to block executives at AIG from receiving bonuses after the company received federal bailout funds. (Chip Somodevilla/Getty Images)
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TEXT OF STORY
Kai Ryssdal: Alrighty, so back to the bonuses. Even though, as I said earlier, the government owns most of AIG, President Obama and Treasury Secretary Geithner are going to have deal with the lawyers before they can stop any checks from being cut. Marketplace's Steve Henn explains that executives at AIG argue the payments are required by legally-binding contracts and so, they can't be changed.
STEVE HENN: When the auto industry asked for a bailout, the federal government demanded that auto workers give up some benefits first. But before they bailed out AIG, federal officials didn't insist executives there give up the bonuses in their employment contracts. So now that AIG has its money, what kind of leverage does Treasury Secretary Tim Geithner have?
ADAM J. Levitin: Very little.
Adam J. Levitin is a commercial law expert at Georgetown University. He says Geithner could probably fire these people.
Levitin: I think so, but I'm not sure that would mean we wouldn't have to pay them the bonus.
Legally enforceable contracts generally can't be altered by the government, except in bankruptcy. And the entire point of the AIG bailout is to keep the company out of bankruptcy because if it went under, it could bring down the financial system.
Levitin: Sometimes with bailouts, we have to, for the good of the entire system, reward ahhh...jerks.
But Bill Black, a law professor and former bank regulator, believes the government still has some cards to play.
Bill Black: These bonuses are based on phony accounting income. And so they need to bring actions against the security fraud. That should establish that these contracts should never have been paid.
AIG signed these bonus agreements in 2007, long before its problems were widely understood. But several outside accountants believe by that time executives inside the AIG should have known they were headed for disaster.
In Washington, I'm Steve Henn for Marketplace.
Comments
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From CA, 03/20/2009
re: your wallstreet connected guests (cluster stock etc) who disliked the 90% tax. "what if they don't like journalists and tax them"...
what a load of bunk. everyone trying to submarine the action is hyper-extending it to appear "you could be next". the tax has a lot of conjunctive requirements (you earned more than 250k AND your company received >= 5B of tarp AND...)
Sure, it was the only way to clawback the bonus' AFTER the checks were handed out friday before the public announcement, public shaming didn't appear to work and the notion of "retention" clearly failed. I heard a cbs commentary laying down the fear "what if a banker's wife made 175k and he got the bonus as an aig employee..." - simple that is when they decide to file separately! the "fix" may have been rushed, but is clearly appropriate for such a company that did so much damage.
another way to think about it:
there are 3 stages of "broken contracts" 1) an employee now has to pay more for FUTURE healthcare, future 401k contribution is cut, etc.
2)a past contract of a current employee is broken - mandatory switch from defined benefits to contribution, auto workers give up wage and healthcare agreements, etc.
3)contracts broken AFTER they were earned - RETIRED airline, steel, newspaper and autoworkers required to give up benefits, pensions cut 50% by PBGC, etc.
the recent congressional action is more like 1) or 2).
I would personally like to see clawbacks of all the ill gotten gains of past executives of since the glass stiegal time bomb was repealed by the crony lobbyists. I can hear the outrage now! but wait, when an extreme event such as this 20 year decline by 50% in the market, record breaking deficits and deep recession events occur, there should be a way to qualify this extreme action. there is legal precedence for such action - when worldcom, enron, quest, jdsu, broadcom,... insiders were found to have lied about earnings or backdated stock grants, the sec (half heartedly) clawed back ill deserved gains from the executives. This is analogous to 3) described above. so it's really not out of the question. return the stolen gains back to the coffers from which the bail out is being doled out for the benefit of the nation. And lest you think "claw backs" are bad actions, the recent news that financial companies want paid taxes returned now that they admit their assets were worth much less, shows they are not opposed to clawing backs themselves.
From AZ, 03/17/2009
I'm pretty sure all the stuff you are angry about were done legally. If you wanted it to be illegal, then would could have stopped it by passing all these regulation proposals put forth in congress that were stopped by the Republicans or congressmen lobbied by Wall Street.
Ask yourself, if you thought the word "Regulation" was a bad word 4 years ago. Why is that?
Unfortunately these crooks may get away clean, just like Al Capone...unless we charge them with tax fraud or mail fraud. Because we can't charge them with not being regulated enough.
From Bethel, CT, 03/16/2009
This just goes too far. Yes, I'd like to get the money back, if it can be done legally, but that's just not enough anymore. I want to see some perp walks. I want to see some of these people stamping out license plates. I just can't believe that $2 TRILLION is gone - and no crime was committed? I hope that as well as poring over contract law, etc., the Justice Dep't is looking to see if RICO, or something like it, can be applied. We seem to be stuck with bailing out the companies, for the good of all, but equally, for the public good, the people who ran them must be held responsible, to the maximum degree.
From Seattle, WA, 03/16/2009
Tax the bonuses at 100%. Tax bonuses, incentive pay, retention pay, and hiring incentives. Anything above and beyond ordinary salary (which is high enough as it is). If we want to be incredibly generous and make sure we take care of the "little people" at AIG, tax any bonus above $5,000 a 100%. And as an added "tough love" measure, ensure that 100% of their returns get audited, and so when they cheat (and we know they will) they can finally, finally go to jail.
From Los Angeles, CA, 03/16/2009
It is pathetic that bad business principles and behavior, whether condoned or overlook by the company, can be rewarded. There is truly something rotten in the financial principles of our Nation that allows this corrupt unethical behavior.
From Portland, OR, 03/16/2009
Fine. Let AIG pay bonuses if binding contracts. But Geithner runs IRS so he/ Congress can TAX bonuses paid to any bailout recipients at 100% and Treasury gets it all back. If Geithner could pull this off he would gain credibility he needs to be effective going forward.
From WI, 03/16/2009
Okay, okay, I get that AIG is legally bound by a contract to pay bonuses to employees, but tell me that there was a clause in those contracts that states that if you don't do your job, you don't get paid! Please, please tell me that these contracts don't say that Mr. Employee gets a bonus regardless of whether or not Mr. Employee does any good work. What company would seriously enter into a such a contract? Can I get a deal like that?
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