American Morning
Commentary: "We owe you more"
From Jill Schlesinger, Financial Advisor – Special to CNN's American Morning
Editor’s note: Jill Schlesinger, a certified financial planner, is executive vice president and chief investment officer of StrategicPoint Investment Advisors, which is based in Providence, Rhode Island.
I appeared on CNN's "American Morning" at 7:30 am today, ostensibly to provide commentary about the payment by beleaguered insurance giant AIG of $165 million in bonuses for last year. The interview turned into a brawl as the other guest vilified me and all of Wall Street for the AIG bonuses – in his mind, the compensation issue was in fact the root of the whole financial crisis. I did not get the opportunity to talk about what is missing from that analysis.
I came off the set thinking that we owe you more than a divisive, populist shouting match. Analysts, broadcasters and journalists of varied stripes owe you the nuance of the story, not just the headlines. We need to find the space between the poles that divide us so that we can discuss and understand the grey areas of this complicated and important subject – that is where the truly important policy decisions lie and where the impact on our economic future can be found. So here is the grey area surrounding the AIG bonus/Wall Street compensation story that I was not given the chance to articulate this morning.
As the financial crisis has unfolded, it is understandable that we seek to lay blame-that's human nature. Let me plainly state that every financial crash needs a number of willing participants-this crisis is no different:
· Wall Street firms assumed ridiculous risks and let down their shareholders;
· Boards of these firms rubber-stamped compensation packages that were astronomical and didn't appear to understand that risks that underlie returns;
· Shareholders allowed board directors to keep their posts because the companies were making too much money to make waves;
· Lenders and borrowers alike got caught up in the booming housing cycle and lost their heads;
· Lawmakers on both sides of the aisle were unwilling to act like adults;
· The Clinton and Bush administrations were huge fans of deregulation that helped augment the bubble's progress;
· Regulators were too lax in their enforcement activities, as they usually are during raging bull markets;
· The Federal Reserve under Alan Greenspan maintained a low interest rate policy for too long; and
· Too many Americans forgot the simple rules that we learned from our parents: don't spend more money than you earn, and save a little bit from every paycheck.
With that said, let's get on to the matter at hand: the structure of compensation in the financial services industry. To understand this area, you need to accept that these people earn a TON-precisely because over the past umpteen years, they have been extremely profitable and have been in the business of making what everyone wants: money. Most Wall Street firms started as partnerships, where a bunch of guys took very low salaries, pooled their money, invested it or advised others, and hopefully at the end of the year, there were profits to split and those profits were called bonuses. That structure worked well in its day, but probably stayed in place too long and needs to be updated, but it is still the norm on Wall Street.
Here is an example of how the system works today. "Jennifer" is an employee of ABC Securities. When she was hired, she was told that her "total comp" would be $300,000, comprised of a $100,000 base salary and up to $200,000 of cash and stock "bonus" that is discretionary based on her performance. Jennifer's bonus was not intended to be subject to the profitability of the firm, because that is not how the deal was structured. Yes, the second part of her pay is discretionary, but in most years, as long as Jennifer performed her job and her business unit did its job, she would earn $300,000. In that sense, the term "bonus" is a misnomer-it should really be called deferred compensation that most employees use to manage their own financial lives. And in fact, many Wall Street employees took large cuts to their total income last year due to the terrible conditions that existed at most firms.
There is a big difference between these discretionary bonuses and the AIG situation. The AIG $165 million represents legacy "bonuses" that the company was contractually obligated to pay. Yes, I know that it seems unfair that we taxpayers are making these payments, but when the government forked over the fist bunch of money to AIG last fall, there were no compensation strings attached. I think that the rationale behind that decision was two-fold: (1) the severity of what we were facing was so acute that some details were simply not covered, and (2) the government was concerned that the new management of AIG be able to retain a core of their best people to help wind down some of the most dangerous aspects of the business. (Remember, this was a mere fraction of the total amount AIG received – the real issue is where did all the rest of the money go, which a totally different conversation.) Without a guarantee, many would have fled the toxic environment and left AIG in an even deeper hole.
This is but one small aspect of the crisis and yet it is so easy to scapegoat "greedy Wall Street" as the cause of all of our financial woes. Focusing on the bonus issues – while playing to the real anger that exists out there – diverts attention from the bigger issues and makes this about class warfare and not about basic good governance and risk controls – whether in the administration and oversight of TARP funds or the regular conduct of AIG's and other recipients' business. The more sophisticated approach demands that we assemble the facts and accept that the there is no one person, institution or class of people that is responsible for the mess. We got into this together and we will emerge from it together. So let's stop shouting and start talking like responsible adults-we owe it to one another.
The opinions expressed in this commentary are solely those of Jill Schlesinger.
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AIG should have been, and still should be, liquidated.
I have no problem with people receiving deferred compensation based on their performance and not that of the company. However, I do have a problem with the mayment of deferred compensation or bonuses when the company's overall performance is so bad that it would have folded without an infusion of cash from the government.
If the government had not stepped in and let AIG fold, would the recipients of this deferred compensation received a dime?
Of course Jill Schlesinger supports having the bonuses paid...she probably get's paid as a financial advisor by at least one of them.
Sorry, I still cannot subscribe to ridiculous amounts of money being handed out – this includes actors and athletes and TV personalities and corporate moguls. If you work for yourself – great you get your earnings. If you work and it derives so indirectly from other's money, then there has to be limits – or very high taxation – take your pick. The excuses are to keep people or executives – well I for one have seen too many executives still employed while almost gleefully enacting large layoffs. At least some in the acting arena spend time when not making shows or movies doing something responsible like bring awareness to the Darfur outrage.
This article first explains discretionary bonuses that evolved into deferred pay, but then says the AIG situation is different because AIG was contractually obligated to pay these 'bonuses'. Were the AIG bonuses not linked to any individual or company performance objectives at all? If the AIG bonuses were not descretionary, then why isn't this compensation included as salary? Something is still very very grey here.
If bonuses weren't paid, then AIG would lose some good people. So what? I hear there are tons of good people with finance backgrounds looking for work right now. I bet they'd be willing to take some of those jobs just for the salary.
Alesia said "...no one should make millions in bonuses." The question is do you want to live in a free market, capitalist society or do you want to live in a communist or socialist society? In my opinion, people should get paid what they are worth to their organization. If I make my company $10 MM and they want to pay me $3 MM, who are you, Alesia, to say that they can't?
Look, I get it. It is certainly bothersome that a company, that would otherwise be in Bankruptcy and unable to pay salaries (let alone bonuses) to their employees, is paying out millions in bonuses. If you want to argue that the government should have just let them fall into bankruptcy, liquidate its assets and whatever the impact on the rest of the economy – so be it, that is your right. But, if you put yourselves in the shoes of XYZ employee who can get paid $3 MM on an open and free market and has an employment agreement or contract with AIG, what do you want him/her to do? If AIG can't/won't pay, XYZ would go to another company. If AIG doesn't fulfill its contracts, XYZ might take legal action against the company. The politicians are getting a lot of mileage on this one and it is possible that there is some fraud or malfeasance burried within this issue. However, it could also be just part of the business that is necessary if the company is going to continue as a viable going concern.
I am personally sickend by these bonuses, I am a middleclass , middle aged , single man earning less then 38,000 a year. raises and bonuses are based on performance. AIG lost ...... how mush in the last quarter of 2008...... there should have no bonuses for poor preformance. Those people still got a large wage and health bennifits. and let's tose in the fact that I also went over two years with out health insurance . which i have had now for about 1 year. at that time I was able to see a doctor and was diagnoesed witha cronick illness. medication runs about 2600.00 a month. you do the math. with out insurance what would someone do........... die......... so please before you defend bonuses like those think of the people you are reporting that too.
Sorry Jill, and sorry to use the name Anon. But I was, over a decade ago, a middle manager at AIG in particular position to observe the company's many complex operations. AIG even then had a culture of selfishness and corruption. It has nothing to do with complex compensation schemes. The ethos in that company was always "I get mine, and screw you." Even when it came to paying claims the company had an unspoken policy of rejecting three times in hopes the claimant would give up in frustration. Executives in various division rerouted money to up their bottom line to "earn" unwarranted compensation at the expense of shareholders. You might be right that not all bonus based comp is evil. But defenders are dead wrong when it comes to AIG. It was always corrupt and I saw it first hand.
As I sat down to write a "wait a minute" comment on the AIG bonus payment outrage, I came upon Ms. Schlesinger's commentary. Finally some calm. The judgement of AIG is suspect in many ways; the PR is atrocious. Some "before the falls" announcements and public appearances by key AIG officials would have reduced the heat. As a result of this neglect of public reaction AIG has become the code term for the whole ecnomic debacle. Jay Jarrell
Ms. Schlesinger,
You hit a good point here, a legacy bonus. Hard to argue against that one and still maintain the sanctity of our legal contracts. If that is indeed the case here, what is the duration of these deferred payouts? I know of folks taking 10 and 15 year deferred payouts. If that was the case then the performance is less tied to the current environment. However, if we are talking a 2 year deferral, then actions and results are more easily tied together. If instead this is the case, you still have significant public disapproval and a much harder time unlinking performance and incentive. We are at a cross road for contract law. Union leaders are being forced to change their agreements, home owners are being offered the chance to alter their contracts, but AIG employees are able to hold their contracts sacred. Someone needs to blow the whistle, this game needs to stop, and we need to write better rules for going forward.
The reality is that the government gave away lots of tax
payers' money without accounting for its use. They should
have specified what the money could or could not have been
used for.
Coming from someone who left a hedge fund because of the rampant greed, dubious practices, and cloak & dagger shenanigans I have to say that is some load of crap she's spinning.
I find it remarkable that she attempts to characterize $100, 000 per annum as a very low salary. I'm sure the robber barons agree with her but my stomach turns to hear such a ludicrous justification for such reprehensible actions. AND, she then tries to blame the dealer for the gamblers gaming the system.
Her argument regarding the government’s concern that AIG be able to retain their "best" employees is even weaker – is she referring to the guys in the corner offices who let this CDS exposure drive their company into the ground?
It really does seem that the bailout is a complete clusterf*#^ and that letting this company go into bankruptcy was in fact the best solution in for no other reason to change the mindset that these knuckleheads are owed this "legacy payments." Having said all that, Ms. Schlesinger's defense shows a fundamental disconnect from the general public's view of honest business practices and proves she just doesn’t get it. The wild wild west days on Wall Street are over.
what is this.
"We got into this together and we will emerge from it together"
Who are you kidding. 80 % of the population has done nothing but worked their butt off to pay their bills and save as much as they can into a 401K so that they will have some kind of retirement savings. They are stuck in an economy created by who know who that requires them to spend every cent they make so it does not go under because we have outsourced all of our manufacturing jobs and know how to other developing countries so that we can create a ficticious economy based on skimming a few extra dollars off of each part sold and thereby forcing out of buisness companies the stay in America and stores that sell their products.
What is the payback.
1% of the population has gotten rich and left the rest holding the bag. Not only have they taken us to the cleaners but they stuffed our noses in it by cuasing so much havoc that our 401K loses approach 50-60%. There is no social security because we all know that they raised the soc tax in the 1980's to cover the baby boomers and then proceeded to spend every red cent and replace cold hard cash with a worthless IOU. Why are they worthless. Becuase there are 11 trillion of them now and 15-20 trillion in a couple of years.
Guess what, there will be anarchy soon. Why, because we all know that the stimulus will be used to pay for goverment workers to keep there jobs and make their retirement payments.
Trust me, in 10-20 years when only goverment workers have a pension and health care and everyone else is scapping by there will be a roar that will consume this country.
The wall street constructed some ridiculous rules to benefit themselves. When they use tax payer's money to follow those rules, it is simply fraud. Mrs. Schlesinger forgot, or chose to ignore, that those pay structures are constructed by the wall street to benefit themselves, so that they could take on un-reasonable risks. It the bet works, they take bonus. If the bet fails, they hold the public hostage and take the bail-out money. They KNEW it would happen because they've made themselves "too big to fail". There is no "risk" to them left or right.
Mrs. Schlesinger, you may say "the rule is the rule". I say the fraud is the fraud.
I take complete exception to your statement "We got into this together and we will emerge from it together". I have been hearing a lot of this recently. It is nonsense. True – a lot of people's boats rose as the water level rose but I did not get into this and I know millions who did not get into this. So, stop making such generic statements and I have absolutely no sympathy for wall street now. If these people knew what they were doing (other than raking in the money as long as the party lasted), we would not be in such deep mess. So, let these wall street execs keep their chin up and take a couple of shots. Ofcourse, I have not seen that happen either.
Jill,
thank you for providing the "other side of the coin". While I understand about bonuses and deferred salaries, I can't agree that they still should have been paid. If the "bonus" portion of their salary was really not a bonus, then I think they should be entitled to it. However, if the bonus, is as I suspect, something that really is based on performance, and normally paid in normal years, then for 2008, which was an abnormal year in all manners of calculation, then the bonus should not be paid. And, if this money were related to retention, why in the world would you want to retain the people who drove your company into the ground? If AIG will hire me, I will promise to drive them into the ground for half of what the last guy did. 🙂
"no one should make millions in bonuses" . . . scarier words you will not find; somewhere Karl Marx is smiling. I hear Albania is nice this time of year.
Very articulate. I do see your point about the bonuses and the contractual 'obligation' on them, BUT, I think as an owner of the company (it appears that taxpayers own 80% of AIG now), I should have a say in whether bonuses should be paid to the very people who made the poor decisions that resulted in my having to bail them out in the first place. At the very least, we could simply include a pink slip with the bonus and hire a 5th grader to replace these 'brightest & best' in the industry.
This is an interesting choice of words, and it's why most are not satisfied with your explanation:
"Boards of these firms rubber-stamped compensation packages that were astronomical and didn’t appear to understand that risks that underlie returns"
They didn't APPEAR to understand? In other words, they did understand, but chose to ignore it. This is why Wall St. is the scapegoat. Do you expect anyone to believe that these folks, with their 'umpteen' years experience, couldn't see the incongruity?
Good article. It was interesting to see at least a little bit of the otherside in this discussion.
Thanks much for your perspective. Regarding the "contractual obligation" argument, I wonder why we these contracts are sacrosanct, but corporate employee pension and health insurance obligations are so easily dissolved or "restructured" (e.g., Enron and many, many others)?
The login is absolutely stupid...if the exec's left how could they have left the company worse than it already is?? How can you do worse than losing 100 bbillion dollars in a year?? Get real...bringing in new "qualified" people would have been better for the health of the company going forward.
Your point that the bonus's may be legally binding is valid. But your article promises nuances and barely scratches the surface.
You touch on but do not delve into the concept that bonus's are not appropriately handled correctly in the financial world. You start with the concept that workers take a small salary and if the firm does well get merit bonuses and then divorce the firm doing well from merit bonuses. This is ridiculous and goes to the heart of the issue. Their should be no merit to these "experts" in their field. They risked the company and lost. They shouldn't have been allowed to do this by the board, however, if they had done well, they would be rewarded. How is it merit if they bankrupt the company and still get merit pay. As you point out, bonus's have just turned into a cute trick at deferred compensation to keep employees from leaving before bonus time and make it sound like they are not getting large salaries. If you believe this than address this issue, don't avoid it.
I know a few of these Wall Streeters and it has always baffled me that they make so much money. They certainly are not geniuses. I think the argument of best and brightest is weak. Maybe a systemic overhaul is the best course of action. Sure a lot of people will flee Wall Street...good riddance! Time for them to come back and work for a living.
Just remember as much as we like to blame Wall Street, equally to balme are the politicians whom not once but multiple times gave this money to AIG with out any strings attached.
I believe if the corporations are to take pay cuts until they become responsible and profitable, then let us do the same to the leaders that we appointed. Let us insist on our lawmakers/ leaders to cap all of their pay and make them pay for their own health care until the our Nations balance sheets start swinging the other way and then balance.
I get the point that it is not just Wall Streets fault., but the pain of recovery must be shared. The average person is already paying by losing our jobs, even the people who did not take take loans they could not afford. In addition to losing our jobs, we get to bail out the other factions that acted irresponsibly with our own money. Take back the bonuses any way we can. Let Wall Street share in some of the pain. At least the bonus babies will still have a job.
We would be better off if these "quality" executives who ran this company into the ground actually did flee.
Miss Schlesinger,
Miss Schlesinger,
I have four counter points. 1). Systems (private) are fine and should be untouched, unless the public is harmed. Even laws and rights are suspended when actions can harm public (i.e., shouting fire in a theater). Compensation is tied to public/tax payer funds now and damage has been done not just to share holders, but public (i.e., retirement funds).
2). Lots of economic analysts say the market’s decline have not just been a result of *over-valued* companies and assets. In could be easily the case that compensation has been overvalued.
3). Justifying the magnitude of compensation by using performance of the stock market is an invalid argument as much of the performance was either over-valued (not real) or illegal. Rewarding a worker based on a systems performance without context is the shallow.
4). Your avocation for not punishing executives because you believe there was a systemic failure (multiple factors) does not excuse or prohibit the public to admonish the executives especially when these executives where at the source of the problem and a significant role in the the systemic problem, especially when their compensation is from public/tax payer funds.
Here is my take on the "bonus." First, if there is the legal belief that the employees are "entitled" to the bonus, I also believe that everyone of the so-called best of the best, should be FIRED for doing the job that they did do. It is a fact that this division of AIG was greatly responsible for the financial meltdown. With that being said, the so called bonus checks should be really considered severance pay, and good riddance!!!!
Although I understand your logic and can follow the trail. I also find it hard to swallow as my hours have been cut, my wife's hours have been cut and our take home pay has been cut in half. Our mortage is due again this month, I have 2 cars that must be repaired, and we are having trouble making ends meet. BTW I was downsized in 2001 and no one helped me then either.
I don't know – Just doesn't seem to make cents.
Outsource them all. Mrs.Schlesinger speaks of 'performance' as a key requisite for the bonuses – please show me the performance. BTW – somehow getting $170B out of the public coffers is NOT performance!
BTW – where was the oversight and what else is being swept under the rugs? I hate to say this but the US is quickly becoming a place to be FROM.
Defending these thieves makes her (and StrategicPoint) look foolish.
You are right lady... Great article... congratulations...
Basically, Ms. Schlesinger's reasoning boils down to this.....the AIG executives weren't the only ones to blame for the financial meltdown, so it's OK for them to get their bonuses. What a pant load. Where is the executive's sense of shame and responsibility? How can they accept these bonuses after having operated in such craven, greedy, unethical, but legal ways to maximize profits for the company and its shareholders. The financial instruments these "best and brightest" dreamed up had the sole purpose of deceiving investors. A lot of things in this world are 'legal'. That does not mean they are always the right thing to do.
If AIG has to pay the bonuses, so be it. That does not mean that those receiving the bonuses need to remain employed by AIG. Anyone accepting a bonus at AIG (or any firm that has accepted bail out funds) should have a pink slip stapled to the bonus check.
Bonuses should be performance based. I'm a partner in a small law firm – we don't perform, not only do we not get paid, we get sued.
Why should we reward foolish people with blinders on who sold crap to meet quotas and now seek rewards from a company with little cash other than bailout funds – funds ostensibly destined for lending – unconscionable is too much an understatment?
You're all wet Ms. Schlesinger.
No, I don't buy your argument. AIG didn't need to give 73 people each $1M+ in bonus money to have them help with the"orderly wind down" of their mistakes. Almost every senior executive bonus package has a base of company performance in order to prevent exactly this sort of scenario. This is another example of Wall Street at it's wGreed at it's worst.
Well put. Thank you.
But Jill - the word "discretionary" is still in there, and to all of us middle class types out here, that means that if the company is in NO position to pay bonuses because it is hemorrhaging money and had to be bailed out by Washington, then these AIG people should not have received another dime. In better times, their "bonuses" were probably much greater. In these horrible times, there should be no bonuses, period.
And I am one of the owners of this company, since we the taxpayers now own 80% of the stock. I say NO.
Having worked for a multi-billion dollar oil field company. I have worked for bonuses. All my bonuses were contingent on performance not mention profitability. If the company didn't make money I didn't make anything above or beyond my salary. Do you think this made my coworkers and I work are butts off, you bet your million dollar bonus it did,or should I say your red ink billion dollar stimulus package.
Look ma'm. There's not an employment contract or bonus promise in the world that stands up to the problem of a company no longer existing, and that is exactly what happened here. AIG as a company failed. Its people failed. The firm, and therefore the ability to even pay salaries let alone bonuses would not exist today if it wre not for my money and the money of teachers and police officers and other hard working Americans. So while we suffer while you use money that is being taken from us, you can bet that nobody is going to be given extra.
You can all be happy you have jobs like some of us, and be happy at that.
You also have to realize that AIG is a HUGE company. It is also possible that some people did their job very well and actually deserved bonuses despite the company losing money overall. These were contracted bonuses though, and should have been paid either way.
I think the point is that the American people are tired of seeing insiders, with political ties and obvious loyalties to big business and their own pocket books, trying to convince us that the shennanigans going on on Wall Street are to be expected or are "okay."
The point is, these companies engaged in stupid, high risk trading of portfolios with no actual value to them, and then act shocked when the bottom falls out of the market and they have no capital left.
And yes, in that instance, where a company has lost so much of its capitial because of ITS OWN ACTIONS, we the people, who were called on to bail them out, absolutely are against those same people receiving large cash bonuses.
If we don't put a stop to this behavior NOW, and unfortunately that will call for a change in the basic way Americans do business, then we will see this exact same situation again in a few decades.
In the end, the super-rich are greedy. You know what would be fair? Let them keep the bonus but require that 90% be given to a charity. That's a better use for it than private jets, multi-million dollar homes, vacations, etc... all as a reward for running a company into the ground.
Doesn't anyone see the moral problem here?
Oh and one other point – most contracts have an escape clause for when performance becomes impossible. Say for example the company posts massive losses in successive quarters. A good – heck, a non-suicidal contract – would say that bonuses, or deferred compensation, or what have you, is not paid out of a company's coiffers in that situation. Let's look at it another way: what if there were no bailout? Would AIG then be forced to pay 165 million in bonuses with money it didn't have? Paying out this kind of money when the company is in that much trouble is a violation of the company's fiduciary duty to its shareholders. So is entering a contract with its own executives that obligate the company to bleed itself dry in order to pay executive bonuses. I'd watch for a class action suit in the near future.
Your example of base salary of $100,000 and the remainder $200,000 to be paid as a bonus or stock option is keyed to the wording PERFORMANCE. If the employee's(assuming she is an executive of the highest order) has in some way allowed her organization(subsidiary) to LOSE tons of money, then her PERFORMANCE is UNSATISFACTORY and is NOT entitled to additonal compensation. Such is the cas at AIG.
This is a misleading op-ed.
Ms. Schlesinger says that Wall Street individuals have been making
"a TON-precisely because over the past umpteen years, they have been extremely profitable and have been in the business of making what everyone wants: money,"
but they've been using other folks' money to make it. The money didn't just appear out of thin air. It's probably more accurate to say that Wall Street individuals have been making a lot of money because they positioned themselves at the intersection of a lot of transactions and figured out how to leverage their position to skim a lot of money off the top.
Ms. Schlesinger says that the bonuses were actually "deferred compensation," but bonuses on Wall Street have in fact been tied to individual and collective firm performance. This is one of the causes of the crisis because traders were only concerned with their performance until year-end, due to the bonus structure, and didn't take longer-term risks into account. So no, it wasn't just "deferred compensation," it was a bonus.
As for the notion that everybody contributed to the crisis, while this is true, it's obvious that one of the two biggest culprits was a Wall Street that failed to self-police (the other culprit being the real estate market). The criticism is justified.
The unwillingness of Wall Street to own up to its failures, e.g. as in this op-ed, is one factor that is enhancing current public outrage.
Once again, a financial analyst defends these crooks. There is no grey area here Jill.
Also, the "differed income" argument is a real bad one. The fact is that these people should be unemployed, either due to the company going bankrupt, or from being fired for being so reckless. But you can always count on one thing here in NYC.
THESE PEOPLE WILL ALWAYS MAKE SURE THEY GET THEIR MONEY! The "club" still exists and they watch each others backs to ensure no one in it gets left out. It's an unwritten rule that goes back to the early days the market.
Schlesinger, its your type of "no accountability" thinking that has got the country in this mess. The bottom line is that the only reason AIG is still alive and AIG execs getting paid is because its been deemed too big to fail. Any smaller business in a similar situation would have already filed for bankruptcy and those "best" people would have gotten what they deserved – nothing. Now these execs get to take their 6 and 7 figure paydays and coast through this most severe of recessions that they caused because of their greed.
AIG is holding the US taxpayers and the government hostage and stealing money blatantly from the taxpayers. You want a financial recovery? Then "justice" is more than just a catchy term because people will not regain their faith in the financial system until there is some accountability and deterrence.
PUBLICLY PUBLISH THE NAMES OF EACH AIG BONUS RECIPIENT AND THE AMOUNTS OF EACH BONUS. Let the public opinion do what legal avenues cannot.
I am glad you have the opportunity to speak your side. It still does not make the AIG situation any easier to swallow. People, just Google AIG and why they "can't" fail....see for yourselves that the game is soo deep you should be angery! Politicians, banks, wall street, the list goes on. Pigs get fat, hogs get slaughtered! LET THEM FAIL!!!!!!!!!
I'm sorry. I work in an environment with so-called "deferred" income. That portion is clearly received based on company performance. If the company does well, we receive it and sometimes a bit more. If the company doesn't do so well, it is factored down, or maybe doesn't exist. In the AIG case, I cannot imagine a worse performing company. Contractural obligations are two-fold. AIG was obligated to pay IF the employees performed, enabling a profitable year for the company. I'd hardly say that was the case here.
Ms. Schlesinger, your argument lacks touch with reality, as any of those that support the AIG bonuses. or deferred payments, or whatever you want to call them. People should not make money for losing massive amounts of money, regardless of all the flowery financial rhetoric, or what has happenned in the past.....
Could we please have an example of a legacy bonus?
Sounds nice but its hogwash.
The salaries are too high. The "bonus" in deferred compensation is basically trying to cheat taxes by not having a regular salary.
The moneyed types have ruled the country for too long and have proven to be not as good as they are in their own minds.
Populism? Yes. We need to stop being slaves to capitalists who make up insane rules just to keep themselves propped up.
Why in the world should retention money be paid to retain obvious incompetents?
Their contracts SHOULD be no more solid than the contracts foisted on other workers that have had to suffer in this economy created by those incompetents.
If you defend those incompetents and their ethically questionable at best actions it puts in question your own competence.
Here's what they don't understand–THEY MAKE TOO MUCH MONEY! One guy got a 6 million dollar bonus? 6 million? I have a master's degree and I will not make 1/3 of that in my LIFETIME. It is not us who is out-of-touch, it is their entire industry. The rich make too much money in this world. Athletes who make more for 1 game than I make in a year? Really? Entertainers who make $20 million for one movie? 6 months of working for $20 million?
It might not be the cause of this crisis, but it is CERTAINLY a symptom and a problem.
Jill Schlesinger,
No, matter how you wrap it up the bottom line is you should be compensated for your work. If you make horrible decisions and cause your company and it's investors to lose everything you should lose your job and not receive any compensation. I would have preferred that AIG went out of business along with all the other business welfare recipients. If I have to suffer for Wall Street mistakes I feel it only fair that they ALL suffer as well. Million dollar bonuses just doesn’t seem like suffering to me.
As I said no matter how you wrap it up it still stinks like you know what.
This would be a moot point if these people would just do the honorable thing and not accept the bonuses.
I'm sure they all would like the money, but I'm also sure they've likely been making very good money for several years too.
Isn't helping the country and its people worth the sacrifice?
"as long as Jennifer performed her job".
Well, Jennifer was part of an organization that did not do it's job. So, why did anyone get the rest of the compensation. Call it what you want, but compensation means payment for services. They lost billions of dollars because they encouraged and participated in a ridiculous process that gave low cost mortgages to people who could never, ever, afford them once they adjusted. I had to prove my income and so did my wife when we got a mortgage. If AIG missed the boat on this one, they should be fired. They did not perform their job. Especially Jennifer!
@ Alesia- if your take home is only $35,000 as you state, then why did you bring three kids into the world and continue to live BEYOND your means? I make much more than you and have two children in college for which I have been saving since they were born. I also went to college, I save no less than 10% of my pay even if it meant we ate hot dogs for a week. There were times where I didn't have enough money to buy lunch in the company cafeteria and so I ate leftovers from the night before. I recall having to forgo a $3 bottle of wine for a promotion celebration so that I could buy diapers for my daughter. I sacrificed and scrimped then so that I don't have to now. I was ALWAYS able to save 10% of every paycheck by paying myself first. Your crying about not being able to save anything now is a clear demonstration of the "I am owed!" mentality. If you can't afford it, then don't buy it. You made the decisions to get you where you are so quit whining about it and trying to blame everyone else.
Your explanation would be valid except for your very loose intrepretation of the following scenario...." Yes, the second part of her pay is discretionary, but in most years, as long as Jennifer performed her job and her business unit did its job, she would earn $300,000"
They did not do their jobs!!!!! ...and now we should not only bail them out but reward them over and above for a job "NOT WE"LL DONE". The arrogance, the unmitigated gall to believe you are "entitled" to anything is ludicrous.
Sorry, I think the criminal behavior of the big bonus recipients negates any "contractual obligations". I don't think you made a reasonable case for their payment, Jill.
Well said. However, everything goes null and void when you "take the money" from the US Government versus "make the money" in profits.
Where in these 'contractual' obligations does it state the bonus' are 'guaranteed' by the US Government? Please note that a reply equivalent to "Where does it state that the bonus' are not" is just a childish response. Is my deferred compensation guaranteed by the US Government too? Is yours?
This is a grown up world and this company run by these individuals made grown up mistakes. And then had the audacity to reward themselves with taxpayer money (not Shareholder money).
To place the blame otherwise, Ms. Schlesinger, is naive and immature.
These individuals need to be tracked down and made to pay the money back directly to the US Government (read ME).
Maybe some clarification of "stock bonus" or "stock compensation" would be in order. If these items are merely stock options that's one thing. An option would only be as good as the option price vs the current stock price. If they are actually paid in company stock, then they would be paying taxes on a the bargain element currently. Could someone shed some light on this?
I think the real question is not whether bonus should have been given, but where would the money have come from to pay the bonuses if we taxpayers did not provide it. And, were we bailing out the company or executives that created the problem?
"We got into this together and we will emerge from it together"
You hang with a much different crowd than most of us. You might want to get real. I love when financial advisers get to blame us.
I got news for you, I had nothing to do with this crisis, yet I sure am at risk because of it. There a lot more Americans who don't fit into any of these commentators categories of who is to blame than the out-of-touch Ms Schlesinger has a clue about.
Mrs. Schlesinger you have no point, as your premise is that we all created this mess. You forget that some people were prudent or could not afford country club dinners and spas in California. We decided to put money into our houses. This mess is greed and arrogance. Let's put safe food on the table by paying farmers for their effort, before we lose that rural attitude that was laughed at by the Big City Boys because they were the Rulers of The Universe. That arrogance doesn't allow people to get along.
alas, i missed ms. schlesinger's appearance because i can no longer bear to watch chatty-cathy CNN in the morning. my channel of choice is BBC america, where interview subjects are permitted to fullyanswer questions, and are rarely interrupted by interviewers. having said that, i don't fault the many, many people whose reputations have been collectively sullied by the excesses of a few. we should all fault, as ms. schlesinger notes, a confluence of events of which AIG is but one component. finally, here's hoping at some point we're able to return to basic manners in public discourse, but i'm not betting the farm on it happening anytime soon. too many of us are taking our cues from what/who we see on TV.
I agree with Ms. Schlesinger about the mutiple causes of the situation. I totally disagree with Ms. Schlesinger about AIG being in a bigger hole if these executives left because they were not getting a big bonus. How could AIG have wound up in a bigger hole than they currently are? There are lots of smart, hungary people within AIG who would be willing to fill those empty executive shoes for substantially less compensation and they certainly couldn't do any worse. Wall Street is the only place outside of politics where you make money for failure. Everywhere else you get fired.
You do NOT deserve a bonus for doing the job you were hired to do. You deserve a bonus when the company turns a profit because you went above and beyond what you were hired to do.
No one has the right to tell anyone else how much they should or should not make as a salary or bonus. It is fine to tell others not to be greedy and live within their means and take a modest salary blah blah blah. There are plenty of situations the law governs which have nothing to do with ethics. The fact is these employees had this written into their contract and so it should be honored. As was stated before, if it were such an outrage our government should have caught this before handing out the money. Blaming the 'haves' regarding a drop in the bucket of their bailout funds will get you no-where.
Unfair? Darn right it is unfair.......If AIG was contractually obligated to pay out the bonuses then we the American people should never had bailed out such a poorly run company and they deserved to fail! I really don't believe that the world as we "what used to be middle class" would cease as we know it. My company is on a wage freeze and they have already told us that we should not expect to get a bonus next year. I do not own my own home because I can not afford to buy. As my rent now goes up my salary does not. You want people to start acting like responsible adults??? Try walking in the millions of Americans shoes that can't put food on the table or make their mortgage payment let alone afford any luxury items.......it is insulting to see these bonuses paid to very people who ran their companies in the ground and then said that it wasn't their fault, it was the every day American that bit off more than they could chew.
I really appreciate your online explanation – No one ever communicates through shouting matches. However, As you said in your excellent example of 'Jennifer': "...up to $200,000 of cash and stock “bonus” that is discretionary based on her performance." So indeed with AIG the 'legacy bonuses' – weren't the workers were entitled to their 'base salary' BUT should NOT have been paid last year due to their wreckless and unprofitable performances.
You also mentioned they were contractually bound, but I would assume 'again' the word 'bonus' implies some sort qualitative assessment/evaluation of their performanace. The bonuses should only to be added to their base salary if the company financial status improved based on each of the individual's performance.
Otherwise – if the additional monies are in no way related to job performance or the company's fiscal situation based on their work/performance – should it just be called deferred compensation or their base salary – especially if it is inevitably going to be paid?
If I understand, Ms. Schlesinger argues that if a broker makes a ton of money then they should be rewarded with a bonus. Perhaps so, if there was a quantum of integrity or honesty in the approach used to earn that money. But there was no honor or integrity, simply greed. So while I agree that the bonus issue is chump-change financially, I think it is important to expose those culpable and if possible exact some punishment on them. Maybe that will help discourage the next gang of crooks from trying the same tricks.
Yes, all that Ms. Schlesinger says seems to make sense. But it still does not excuse or even assuage the bitter reality of how my retirment has been ruined by the economic downturn. Sure, younger people can hold on...they've got time. But after working, paying taxes,
mortgages and bills fully and on time, saving as much as I did, to see whatever you have to live on get sliced in half...now that's why we are increasingly bitter and dispondent. OK, so the Wall Street tycoons get paid millions for making money...but where is their soul, their sense of responsibility to the American public, to the people who work all their lives in hopes of at least a few years of a nice life. We don't aspire to their yatchs, private jet planes, Miami beach condos, and all the rest that they enjoy. Just the kind of security we've lost for all that greed to make a fast buck at the cost of an entire nation.
Using the "everyone's at fault" excuse here doesn't cut it. If my company is losing money and laying off employees (forget about causing the downfall of the economy and countless retirements), there is no way that anyone would get a bonus, raise, or the like regardless of who's fault it was. It appears to me that two basic principles are at work here, one being overused and one being drastically underused – GREED and COMMON SENSE. It's despicable no matter how you frame.
I read your article and am even further dismayed. Wall Street and the media who cover it JUST DON't GET IT.
The average American taxpayer who will never even after 40 years of labor see a six figure annual income, simply cannot and will not support this kind of extravagant lifestyle with their hard earned tax dollars.
To pay a bonus or even a million dollar salary to executives of a company like AIG that has been a miserable failure as a business enterprise simply doesn't make any sense.
The media has failed and as witnessed by this article continue to fail the American taxpayer. I support the President and reluctantly the stimulus and bailouts, but these bonuses are patently absurd The world has changed, Wall Street has failed and Main Street is no longer interested in the defense of its arrongant and extravagant lifestyle. Unfortunately you and the Wall Street media that you all too often represent are not part of the solution, alas, you are part of the problem.
Sorry, I refuse to buy it! As a small businessman, I promise you that a losing season does not create bonuses. However, let us focus on Wall Street. Are you expecting me to buy the notion that Wall Street was set-up by a government that created less regulatory oversight, and thus these poor executive who walked away with millions in bonus compensation, were nothing more than pawns of a system gone awry? Home Loan Brokers were misleading borrowers. I personally spoke with many young couples who were given 110% to 125% loans, with loan brokers making thousands of dollars based on falsified documents. All of those folks lost their home when the bubble came due. This shell-game was started on Wall Street, and sold to banks in Europe, the Middle East, and China. When AIG failed, it was caused by foreign banks and investors asking for the insurance coverage to kick-in, and the U.S. Treasury was set-up to cover the scam of the century. Hank Paulson went to President Bush, explained the mess they faced, and the run on the U.S. Treasury started. However, please explain to me, in layman terms, how these executives at AIG deserve the bonuses they received three to five years ago, and deserve an additional bonus when the U.S. Treasury, via the U.S. Tax Payer, bailed them out in November 2008. What we see here are the Money Changers in the Temple. Maybe Jesus needs to visit Wall Street.
I work in a hospital every day, do I get a bonus for not killing my patients? I haven't killed one yet, 32 years and counting. Where's my bonus? I assume ridiculous risks every day too, disease, germs that could kill me. Those bonuses are an example of PURE GREED. No amount of justifying them will ever be enough.
Ms. Schlesinger's point is not valid. Bonus's are predicated on not just one's own performance, but on the performance of the firm. If the firm is not profitable, then discretionary bonuses should not be paid. That accrual is reversed. As to the claim that good people would leave, where would they go. The government should sue to collect all bonuses from all the firms who had to be bailed out. Only those firms who were actually profitable and solvent should be allowed to pay bonuses. What AIG is doing is criminal and their executives should be punished ! Accountability needs to begin now.
That's funny; I was told I'd get a raise every year, but I've already been told no raises at all this year. I'm barely scraping by and I've got a master's degree. I really have no sympathy for someone who *thought* they were getting a 6.4 million dollar bonus. Let them eat cake?????
Please forgive me if I seem one of those "irrate" people, but as your example given, you state the delayed compensation was based upon how the company and the individual performed their said duties. How do you justify awarding folks millions of dollars in bonuses for taking extreme risks and subsequently driving their company to the point of ruin. Given any other job, from plumber to taxi driver, if we in the non-financial business performed as well as the upper management of these marvelous financial institutions, the only reward we would have been given is a pink slip and a swift kick in the backside. I agree that those who spent fiscally wise and saved, have for the most part walked away unscathed, but please don't try to justify the outlandishness of these perks.
I understand your point, but the issue is a matter of 1) emotion and 2) over-complicating something very simple.
If I make the world's best lemonade, and people want to pay me a $1M a year for it, I'm rich, good for me. If I did that for 20 years, I'm even richer. No one is mad at me.
When in year 21 I don't sell a drop, and b/c of my costs I'm at -$1M, it is a loss. I better have some cash on hand to get by. If my lemonade is so well integrated into the fabric of America, and the government sends me $2M to stay afloat, I don't then go and pay myself a high salary, and a bonus.
See, it's not that complicated.
The young lady in your Wall Street example – shouldn't get the $300K. That's how life works. If the company does well, you should be rich beyond comprehension. If the company does poorly, you don't still reap the benefits. I guess she'll have to try to live on her measly $100K, 2 times the average household income in America.
This is no different than why many conservatives hate handouts and welfare – there is a disdain with giving people something they did not earn. If your company loses money, and needs help, you don't reward people. You simply don't. Sad.
Wanna know how to determine if a person is talented enough to retain? Easy. If your company had to get government cash to stay afloat – you really aren't that talented.
I think the basic problem is that the AIG folks still have their jobs AND their deferred compensation courtesy of the taxpayers. Many taxpayers, however, have lost their jobs (= all compensation) even as a portion of their previous income went to support AIG. Even the $100K base salary in your example sounds like a LOT of money to most people. There is a lot of pain around, and yet the apparency is that the well-paid AIG folks are insulated from it even though their actions caused some of that pain.
Re: your interview/ambush. I'm sorry you were set upon so rudely.
Re: your comment on class warfare. Do Wall Street financial types consider themselves a separate "class," entitled to a total compensation scheme (and I use the word with all its negative connotations) that the lower classes don't equally deserve? Most Americans get a paycheck, maybe some employer contributions to insurance costs, and perhaps a Christmas bonus worth 10% of the regular paycheck. (One employer of mine–a credit card processing company within the banking community–gave us a tree ornament one year.) Beyond basic salary and a pay-for-performance bonus is all that the Wall Street nobility deserves to get, in my opinion. And that bonus shouldn't be more than a % of the basic salary.
Your argument sounds extremely weak to me. My wife and I have worked very hard through our entire lives. We have not overspent, we have lived well within our means. We are both professionals and our combined income at the end of our careers is not more than the $100,000.00 you throw out like it was yesterdays newspaper. We had planned on retireing this year, however because of the greed on wall street that will not happen. Our system is broke. I hear defense arguments in your rebuttle but it rings hollow. Where is our bonus?
I wonder what we have come to that there can be anyone who believes that the AIG bonuses, or bonuses paid to staff of any financial institution that has received billions in bailout funding, are in any way justifiable. This is an atrocity. Taxpayers should not be required to reward the recklessness, gluttony, and incompetence that have brought us to the brink. If there are no other means of correcting this situation, the Congress should act to amend the federal tax code to provide that such bonuses will be taxed at an effective rate of 100% (with retroactivity, if necessary.)
One can argue that the high salary Wall Street employees, especially some smart graduates just out of college, get is the result of market forces in action, which in fact is true. But I think if we regulate their salaries then some smart chaps might leave but a lot of good will happen. Wall Street businesses will continue as usual, with ups and downs on the way, and those smart chaps will find creative employment in some technological sectors or go back to graduate school and do research and thus raise the overall competitiveness of the country.
That unfettered capitalism is always good for the country is just an opinion, not a fact.
Not too long ago, I watched, not happily, as our large oil companies made $10 – 15 billion a quarter. I thought that was excessive. Now AIG puts them far in the shade – it loses that much per month. We want to pay extra to keep the people who figured out how to do this? WHY? Had AIG bankrupted, NONE of these 'bonuses' would have been paid. Would we have been worse off if the all-time greatest wealth destroyers had gone elsewhere for employment? I just can't believe it. In no way did they deserve further pay for helping enable this catastrophe.
Hey, Schlesinger. when you and yours start behaving ethically, THEN we can start again to talk about bonus pay. To pretend that the financial industry is anything other than a rat's nest of corruption, incompetence, and greed is really disingenuous.
These employees could not be considered the best of the best. I question their integrity. If any other industry failed as miserably as this industry has, heads would be rolling and the heads would have rolled before, not after, the bonuses. I don't buy Ms. Schlesinger's version of events.
I would like to echo Mr. Heichman's response above – the scuffle this morning was inexcusable.
(I also emailed CNN. I also expect it to be ignored).
I hope in the future that Ms Chetry is more professional and promotes real debate rather than fanning the flames for her viewpoint. Otherwise, we might as well be watching Fox News.
Thank you for posting your view point. I was watching the program and was annoyed at the other person's behavior which was extremely rude. The host was unable and appeared unwilling to control the debate.
Thank you for the article, people are way over stimulated by what the media wants them to see. Some of these people are entitled to the compensation they were promised. Last I looked it was a free market place and one is free to choose their vocation, so I wish people would stop saying I make this amount it's not fair. Point is you pretty much rise to the level that you seek.
Ridiculous! We are to feel sorry for these poor 100k per year earners who work for a company that shouldnt even exist? Oh poor them, they wont get there 300k per year promised to them. What about all those mortgage brokers out there who were making 100k a month, should we feel sorry for them too because there industry is dead? Lets see where they would be today if we didnt gve them billions of dollars of our tax money. I'll tell you, they would jobless and et's see if they wuld have the nerve to demand a 300k salary or take a "pay cut" from their last job. You are unbelievable in todays world to even try and justify people receiving a million dollars of our taxes.
Your example of a $300,000 salary (OK, salary + bonus) still does not create any sympathy with me when most people I know don't even get close to such a salary. So please, get real. I feel your "pain", poor Wall Street. (NOT!)
Are you kidding us? Perhaps those bonuses were intended for individual performance. However, a company that takes $170 billion from the taxpayers does not have a single success story in it and therefore nobody should receive a bonus. Listen, in times of national crisis like this the word "legacy" is irrelevant. To create the perception of a make-believe little free enterprise system within this company in which individuals can still be grandly rewarded while the entire ship sinks is ludicrous. The haste with which the U.S. government worked to rescue AIG does not give AIG the right to ignore common decency.
This wouldn't be about class warfare if people's financial woes were not so extreme. Unfortunately it's past that point and we are witnessing the french revolution of our day. Whether deserved or not, no one can justify even a $200,000 bonus to anyone working at AIG to a person struggling to feed their family under the current economic climate. Couple that with a relatively common (and not completely inaccurate) perception that AIG and its ilk are the root cause of this climate and it's easy to see anger rising. Lucking for those execs at AIG this isn't 1790's France so the worst that will happen to them is they feel the shame of the millions of unemployed on their shoulders when they cash those 6-7 digit checks.
You are dead WRONG....and you are just as OUT OF TOUCH as those AIG executives. There are people out there with no jobs or low paying jobs that are struggling to pay their bills and you people think nothing of buying a $500 suit. There is NO ONE in the world that deserves millions of dollars in bonuses, I do not care what contract they had or what they did. In order for you to understand how ticked off people are, get out of your big house, drive your fancy car..... and go work in a factory for 8 hours a day, collect your check on Friday, dead tired, and then read the tax line on your check and realize those taxes went to people who are sitting on millions of dollars. Frustrating.
"....comprised of a $100,000 base salary and up to $200,000 of cash and stock “bonus” that is discretionary based on her performance. Jennifer’s bonus was not intended to be subject to the profitability of the firm,
Horsefeathers. Call it what you want. When people in this business are compensated based on their performance then it is subject to profitability.
Finally some sense. Yes the "bonuses" were silly to dole out, but it is really nothing more than part of their pay. Just deferred. I don't want the government coming in and taking away these people's paychecks anymore than I want them taking away mine. Be mindful of how much power you give the government. Just like when Bush was in office and we gave away freedoms because of "terrorism", don't give it away because of a poor economy.
I can see Mrs. Schlesinger point on the bonuses; however, Wall Street still needs to wake up and smell their odor. Apparently, they are not the best of the best. Even if they were, no one should make millions in bonuses. Yes, the government should have had better oversight, but they didn't. I believe in college there is a class called ethics in business that wal-street and the government employees must have flunked. As for doing what our parents have taught us and live within our means; try putting 2 children through college, have one still in Jr. High, pay utilties which the gov. continues to let go up, buy food which continues to go up, pay for the outrageous price of gas, and remember housing has tripled in the last 6 years. Now take my salary of 35,000 a year. What is left to save? Nothing!!!! Barely, get by and put food on the table. Oh by the way, I am a college graduate. Should have went into Finance.
Well said, Ms. Schlesinger. I'm glad you posted this. I was wondering about the counterpoint to the rapid populist arguments.
I was watching at 7:30 this morning and I really wanted to hear what you had to say but Mr. Mack kept acting like a child and screaming over you. It left me frustrated enough to send an e-mail to AM@CNN.COM but I'm sure, since it wasn't complementary to the way they ran the interview, they threw the comment right in the trash.
While Mr. Mack was childish in his appearance, the real blame should fall on Ms. Chetry. She appeared to disagree with you, also interrupted you and didn't control Mr. Mack's behavior. She is normally one of the better interviewers around and the reason I switched to American Morning when she left the other network. It was disappointing to see her act so unprofessionally this morning. She even said you could have the last word and didn't follow through.
We saw what we saw