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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Deferred compensation. Interesting.
How about this for thought.
If the government really allowed AIG to tank like Lehmann, then I guess this whole "deferred compensation", would not be an issue because these execs would not be receiving any money at all.
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At any rate, because of the nature of the bailout, the company should not have played by the same rules. Now, if AIG needs another injection (and it probably will), many will probably go – let it fall.
And I guess when it does tank, there won't be an issue to be outraged about because they'll be no money to even hand out paychecks – say "deferred comps" or "bonuses".
Hooray for Ms. Schlesinger. I agree with her 100% on her last statement – that she would not be returning.
Her written statement about a ‘more sophisticated approach’ serves to further divide Wall and Main streets. As far as responsible adults, I view her as being just as irresponsible as the greedy AIG bonus recipients. No amount of double talk can defend their sense of entitlement and their bottom line greed. Ms. Schlesinger may have all the credentials of a knowledgeable financial advisor, but appears to lack the good judgment of someone I would trust with my hard-earned money.
I do agree that corporate executives who makes the daily business decisions should be compensated handsomely in the form of bonuses .. even in millions of dollars. But if your company has just tanked due to mismanagement/incomptence/greed, none of these executives should receive any amount of bonuses. Their salaries should continue as usual but no bonuses should be given to them when it comes to taxpayers money.
If the bonuses come from AIG's, not one person would be bothered by it. These wall street scumbags do not grasp the real meaning of accountability. AIG executives makes me sick and there is no valid reason why their bonuses should be paid by taxpayers money.
The bailout funds were intended to prevent AIG from defaulting on claims. None of the bailout should be used for compensation.
"Nuance by another name: "nonsense. AIG was - and still is - a hedge fund. Nothing about delivering value; nothing about integritiy or hard work; nothing about anything but making a bet, using someone else's money.
You make the case that the AIG bonuses are earned by people doing their normal job and not really "variable pay" for outstanding performance. I wonder if AIG would agree with that. Companies have to classify their bonus plans as one or the other– google "162(m)" to see the rules. Maybe AIG was illegally deducting their previous years bonus payments to executives if they weren't really for performance?
I agree with Stan ( March 17th, 2009 3:39 pm ET) that if the company loses all this money, then executive performance cannot be judged as “bonus-worthy”.
I also agree with Stephen (March 17th, 2009 3:39 pm ET) about the financial industry making un-godly amounts of money because they can, not because they deserve to or should. I think a lot of this outrage about executive compensation has been brewing for decades, and is really bubbling up now because, before, Joe Shmoe made an “adequate” living and was willing to keep his mouth shut about pay inequities. Now that Joe Shmoe is in pain, the anger that has been brewing is boiling over because the execs aren’t feeling the same pain. Money has lost its proper meaning in our culture. Money ought to represent hard work, skill, knowledge, performance of a societal need. It doesn’t… it currently represents “what you can get away with”. Does a financial exec deserve millions of dollars, tens of times more money than say, a primary care physician? I doubt that the exec works harder than the PCP. I’m sure the exec isn’t smarter than the PCP. The service the exec performs isn’t anywhere near is important to society as the PCP. So why does the exec get millions more than the PCP? Because he can get away with it.
More financial expert claptrap. AIG lost money, it should have gone out of business. How can a company that has no money pay out a bonus (or deferred compensation), the hell with a "so-called" contract – there is no money. And since AIG has basically been taken over as far as I am concerned these contracts are null and void. Technically I am one of the owners and as such I say no bonuses and better yet FIRE all these people. And I'm also tired about hearing how good talent costs money. Just how much talent does it take to run a con game? Lot's of crooks who never took a finance class in their lives do it quite well.
This country runs because of the little people, not the elitist rich. Think about it – who fights for this country, who puts out the fires, who teaches the children, who protects our neighborhoods, who grows our crops, who raises our livestock – need I go on?
Let us just discuss common sense. How about a new common sense legislation:
"All PUBLICLY TRADED companies should not pay any bonus unless they show profit for that year notwistanding any contract that may exist between the company and their employees. Bonus pay should not exceed the percentage year over year profit."
I don't expect congress to pass any legislation like this because they are all thinking of of life after congress when they join the private sector and hop on the gravy train.
This kind of legislation will eliminate the argument that they will lose talent to competitors because this law will apply to most of them.
"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. "
SEEMS unfair? That they took advantage of the situation only drives home the fact that this entire debacle was/is fueled by pure avarice.
The only reason I can think why you are defending this malarkey is that you're in the same business.
You are right up there with P.T. Barnum, scum.
Bonuses are essential part of providing incentives. But when peoples greed takes over and they have all the control the result is the financial mess we are in. No one cares about any thing else but how much money they are going to take in at the end of the year. These people at the top have to show that they are worth the money they want just like anybody else. This friends sitting on the boardroom of friends system does not work. Have a proper bonus that is tied to performance. If you do not perform you do not get any bonus just like all the rest of us. Do not give me the crap that if they do not get bonus they will go somewhere else even though they ran the company to crap. Who ever agreed to the shady contracts at AIG including the board of directors should be brought to task. Who is looking after the interest of the shareholders.
This is ridiculous to argue that they deserve the bonus. Yes if they made billions they can get their millions. I have no problems with that. But no bonus should be automatic whether they perform or not. Also a bonus can never be so huge compared to their salary.
Alisia Wells makes the pathetic mistake of thinking anyone cares that she has kids to put through school and feed! It's about time that pathetic Americans who are just bitter about other peoples financial sucess get a clue. We financially successful individuals mostly got there through hard work, long hours and sacrifice. Nothing was just given to us like you pathetic underacheiving over leveraged spend aholics would like to delude yourself into thinking so you can sleep at night and not have to take responsibility for your titanic failure of a life.
Having children ISN'T a right it's a privilege so if you can't afford kids on your salary then don't have them. No one cares that you made the irresponsible decision to have kids when you couldn't afford them. Go rot in a homeless shelter or give your kids to some hard working decent americans who can actually pay for their decisions in life. They'd be better off being raised by adults who could serve as a decent role model not someone who doesn't think their actions have any consequence.
American's self entitled mind set is what got us here in the first place. Not to mention the I should be able to live like the Jones's even though I don't earn like the Jones's. The top 5% pay over 60% of tax. The top 5% employ the middle and lower class. So maybe we should start giving the money to the people who will actually spend to employee all you cry baby complainers.
Note to all the vast majority of Americans who got them selves into financial distress or foreclosure due to their irrsponsible behavior:
GO ROT IN THE SOUP LINE YOU DESERVE IT!!!
As defered compensation to be paid based on performance. One would think some employees whether regular, managers, or execs, obviously someone F'ed up causeing the overall performance of the company to faulter. In this case the overall compensation payout should either be reduced or eliminated.
Since the original "Bail Out" loan was basicaly a blank check made with no oversite, We the People, can thank our elected officials in the Senate, Congress and the President of the United States and let us not also forget the Chairman of the Fed, for ramming the Bail Out Bill down the throats of the tax payers of the United States.
I would imagine with the fine work our elected officials have done, we can expect them to vote themselves a nice pay increase, or should we call it defered comensaiton?
I agree with Mrs Schlesinger that their a lot of people to blame Clinton, Bush, the current Democrat controlled congress the previous Republican controlled congress, Greedy banks and Wall Street types. But what does she have to say to the people who lived with-in their means, who didn’t take expensive vacations and buy fancy cars. Who worked hard and honestly for the money that they received. What about us that the only mistake we made was listening to Financial Advisors who allowed people with big accounts to trade after the markets were closed and told us who and what to invest in with out being willing to take any responsibility for those suggestions. Where is our Bail out money or large bonuses where is my 100,000 dollar salary or even 80,000 or 50,000. I served my country for 22 years in the military and now work to help veterans get their benefits. I have never been paid a lot of money but I tried to be a smart investor but if people like these can’t figure it out what chance do I have.
You people need to stop blaming the American People for this mess and start acting like “Adults” and clean up your business and the Government need to start acting like they have some sort of ethics and responsibility.
commenting on this
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.
– no we did not get into this together..only the greedy got into this and they got into this together.
whats the ratio of americans who got into this and made profit or loss out of this with direct investment? i think the percentage would be less than 10%.so how is it that we got into this together?
this sounds more like the saying: success have 1000 fathers,failure is always an orphan
Um, since the govt owns AIG now and you cant really sue the government, whats the risk of just not honoring those contracts?
I agree with Mrs. Schlesinger's point that we all need to act like the responsible adults we purport to be. Screaming and yelling solves nothing and is very childish! That said I find the arguments regarding contractual obligations and retaining the best and brightest as somewhat lacking in substance. There was no question with the auto companies that if they were to receive bailouts the management and unions both would have to give on compensation going forward. ...And they did. Other senior management at other corporations have rescinded bonuses in light of the serious financial conditions. As for retaining the best and brightest to keep AIG running. My difficulty with that is first, 11 exec's have left anyway and if these bright people brought AIG to a complete collapse, ... why do we want them around to fix the problem? If they didn't see (or want to see) the problem coming how will they know where to take the company in the future? They were obviously not understanding the degree of risk they were taking. Corporations who are deemed "to big to fail" should not be allowed to take risks that would threaten their solvency.
Had AIG gone bankrupt instead of receiving a bailout with our tax dollars, those execs would be out of work. They should be grateful to have a job, unlike many people in NYC today. Do the right thing - FORFEIT THE BONUS!!!!!!!!!!
I think one of the weirdest oversights in all of the arguments about the financial bailouts is the presumption that these highly paid financial industry executives will simply evaporate unless they are paid their millions or hundreds-of-thousands. Taking the author's point, AIG might have suffered a disorderly winddown if these "deferred compensation" packages didn't come through. My question is where would these people have scrambled away to? CitiBank? Wachovia? At this high level, it is a zero sum game – there ain't a lot of positions open for what they do. If I have nowhere else to go, I'm pretty sure I'll do the job I was paid for at $100,000, even if I was expecting $300,000. In such a case do I cut my expenses drastically? Yes. Do I keep my job? Also, yes.
Hmmm... nothing new revealed here. When AIG was on the brink of failure and received taxpayer money in the form of a bailout, that voided any of these 'bonuses' under their contracts for the simple reason that if they didn't receive the bailout, well then AIG would have folded and then they wouldn't have received their bonuses anyway. They no longer deserve that 'TON' of money.
And no.... we 'didn't get into this together'; the vast majority of us are the little folks that don't have any pull as shareholders since we individually own such a miniscule amount, and therefor we have no influence of these boards. That game is played by the 'big shots' of Wallstreet and we little guys are not privvy to that world. We're just working our 9-5, contributing to our 401k, and hoping that we can retire someday. Now our 401k's have atrophied, we're losing our jobs, but oh... we still have to give those Wallstreet jerks a BONUS for this because it was in their overstuffed contracts???
Wow...exceptionally well written. This is the best commentary I've seen on the subject and really should open some eyes to the dangers of a "populist" administration.
a bonus should be paid for outstanding performance and when a unit or company makes money,,, the argument that we need to pay a retention bonus to AIG staff to " keep the best and brightest" it seems to me that the " best and brightest" got AIG in the mess the are curently in and, we are paying the price... where is the logic???? where is the common sense,,, or is in your mind that these " logic etc: are only for the " best and brightest"" come on let's be real on this and cut the crap>>
JC
Hey Alesia – not sure what world you live in, but gas has been down for some time, food isn't continuing to dramatically increase in price, and neither are utilities (and if they are, it isn't the government who is forcing it on us). And not everyone needs to jump on the buy a house bandwagon. The real question is – where is your husband in this equation? In the midst of your blame the government/system spiel, is the simple truth that somebody, namely you, didn't use the best judgment? I'll give you some credit for putting your kids through college – hopefully they are getting degrees in something useful.
Well, you knew you were in for it when you titled the article the way you did. What a mealy-mouthed apologist you are for everyone that has stolen the future from all of us! Whether or not I spent more than I should have (how dare you make a stupid blanket statement like that!) has absolutely nothing to do with the fact that the retirement money I spent decades accumulating and placing in so-called safe investments is now worth nothing. We have been robbed by these people, and you are making a fortune (you overpaid, ignorant nobody) acting as their defense attorney even before charges are filed. And oh yes, they should be arrested and put on trial, in public! I hope your family is as hungry as mine.
Fine. If AIG had these contracts already in place, the solution is simple. Close down AIG, thus eliminating the contracts, sell off their assets to other firms or allow the government to take them over and redeploy those undeserving SOBs to a job more fitting to their obvious talents – I recommend putting them to use cleaning out the rest room stalls between innings at the new Yankee Stadium. They can work their way back to wealth doing honest work – for example after six months they can move up to using a toothbrush.
This way everyone's happy and I have a nice clean place to poop during the seventh inning stretch.
Yes, I've watched these "manic" discussions before on everything from finance to some Hollywood-designed, "star" twit driving drunk & frankly, we need a lot more civility. This IS a complicated subject with more than enough blame to go around. But let's get one thing straight- the "rules" have NOT changed no matter how blind regulators are, no matter how egregious the pay scale is for executives, no matter how things are "justified" to meet the scenario that investors, banks, rating agencies, and just about everything else involved in our free market system WANT it to be.
1. If a company doesn't make a profit, bonuses won't/CAN'T be paid.
2. We will have good years & bad years; that's why we put away money for "a rainy day." Sorta a "dollar cost averaging."
3. Top executives don't make more than 19 times what the "average" worker makes-not 300 times!
4. We can't "Outclever" ourselves with tricky inventment(s). Who in their right might would invest in something, like derivatives, they don't basically understand?
We have just retired a yr ago & are comfortable, but not rich. We have NO debt & a large amt. in savings that my husband prudently managed with his acquired skills & judgement. And it took work learning & keeping up with investing stragedies. We knew we HAD to start saving about 15 yrs ago & boy there is nothing like FEAR to motivate. We put ALL of my paychecks into the bank; I never saw them. How were we able to do this? We lived within our means ALL of our lives. We lived well, but not extravently. And we have been rewarded with 2 sons who are following in our footsteps.
My only fear is this health care fiasco that passes for care in this country. Believe me, I have relatives in Australia & it works quite nicely there, thank you very much, & it makes their retirement much more secure & less worrisome.
Jill:
You start out by saying everyone is to blame and, to a certain degree, I agree with that. But everyone, with the exception of the Wall Street executives, has paid through the nose for their share in the financial meltdown: the borrowers who have lost their homes, the incumbent lawmakers who lost last election, the bank shareholders whose holdings have now been reduced to penny stock. But the Wall St executives have NOT come even close to atoning for their actions. And THAT is the crux of why the other guests vilified you (I agree somewhat discourteously) on American Morning.
And you can define 'bonus' as deferred compensation if you wish, they are still not entitled to that money, given they would be thrown out on the streets without our taxpayer money funding their lavish executive pay.
The whole bailout should never have happened, the company does not deserve a future. I hope all US Senators and Representatives are taking notice of the public anger over this.
A few points –
1.) Taxes are withheld from bonus pay at the max rate which means about 40% of that $165mm is going back to the IRS anyway.
2.) Do we really want the govt dictating a company's compensation levels? Sure it's okay when we're talking about the big execs, but where does the dictating stop? I bet there are a ton of non exec AIG employees who got some kind of bonus there. Even if it's $5K or something. Is that outrageous? Should that be stopped? If you work for any private company that ends up getting TARP or stimulus money, do you want the govt to have a say in what you get paid?
3.) The govt ran Fannie and Freddie and look where that got us.
4.) The govt was outraged at all the subprime lending that went on that caused the real estate market to pop, but they are now just as outraged that banks aren't lending to people and businesses with marginal credit. Do they want another cycle of credit to pop?
Thank you for writing this. My husband and I tried to listen to your side of the story and unfortunately were frustrated by the antics of Mr. Mack to completely obliterate your attempt to do so. We also could not believe that the interviewer, Ms. Chetry, could not or would not maintain control of the interview so we could hear both sides. We certainly hope she is not paid a performance bonus...because given her performance this morning, she does not deserve one!
I just hope we don't continue to politicize this "who does and who does not deserve a bonus" issue and get on with moving this economy forward. In my opinion, it will have to be done by smart, motivated and probably "well paid" people.
I am a business owner & one thing is certain...if you don't have any money – you can't pay bonuses, period. It is a basic financial reality that "financial experts" have choosen to ignore.
This money has been made available to save their jobs ... not line their pockets!
Does anyone here truly understand anything she is saying, it seems not. Let's say you have insurance on your house, the insurance company is in financial trouble. You have a fire, you file a claim. If then the insurance company goes under, and file for bankrupts, GOOD LUCK at getting your money at time soon. If we let AIG collapse, and all those people who know the INTER WORKING of the system get fired, how will you ever fix the problem? By the time you restructure the business and hire new people (who may or may not be better then the prior managers) the business and all its clients and support, are DEAD. If a mom and pop shop on the corner fails, at most 10-20 people lose their job, and a few supplies lose a small customer. If a 2 trillion dollar business fails, thousands lose their jobs, their clients lose a service that was already paid for, and all type of secondary companies loos business and it starts a chain reaction.
It seems the people to just rush to anger are either politicians trying to appease people, ignorant people who do not understand the ramifications of letting these companies fail, OR are reporters making headlines for profit.
When your ship hits an iceberg do you just FIRE everyone who knows how to operate the radio and life boards, even though SOME of them are responsible for hitting the iceberg in the 1st place?, or do you just deal with the situation the best you can.
so the bottom line on what the correspondent is saying is
wall street ceos get bonuses regardless of how the business is doing?
when the firm is making profit-ofcouse they get profit no doubt about it
when the firm is being bailed out -they still get bonuses ,and the half page rationale you gave justifies it
so this is a business with no risk for executives??
Oh, and a note to "hedgefundcsi":
I'm assuming you are articulating some sort of critique of the Obama administration and the democrates in congress. Just a guess though...
Your points are not without merit, however, after years of working people getting hosed down and having to swallow pay cut after pay cut, benefit cuts after benefit cut, while fat cats arrogantly act like they have this sense of entitlement to grab as much cash as they can, and their cronies in Washington enabling them to do so for the most part, enough is enough. Working people are on the line everyday, and if they don't perform they get axed, and yet these clowns get millions for failure. PLEASE! The entire economic system in this country is essentially unfair and unsustainable. We are being extorted by AIG and their ilk. It is class warfare in reverse. If these Wall Street types don't want a class war on their hands, then they should stop waging one against working people, because mark my words, WE WILL FIGHT BACK! Working people can unionize. Then they have power. When working people in this country and realize this simple fact, then the real fireworks will begin.
I wish I could get "deferred comp" for losing billions of dollars. Call it was it is Jill, it's a bonus! You drive a company into the ground, ask the taxpayers to bail you out and save your jobs and then you want a bonus on top of that. Just exactly how many Americans do you think are making millions of dollars in bonuses for substandard performance? Jill, you are part of the problem hiding behind excuses as to why you guys should make so much. I have no problem with people making what they can but when you are doing it at the taxpayers expense, shame on you. This company is now owned by the taxpayers until you can come up with the billions that you took from us. As far as I am concerned, I hope it goes chapter 11 and half of you idiots can go look for jobs
My question is, if the government let AIG to fail, would they get their bonuses? Of course not. So they got them not because they made it but because they stole from our tax payers. I know, our government is stupid for not putting any stipulation there, or they are really smart to help those at AIG since the same Wall Street crooks were/are running the treasury and Fed.
Ms Schlesinger –
Although I disagree with your ultimate conclusion on the issue of the AIG bonuses, I appreciated greatly your rational and well written article above. We live in a society that can only focus on one problem at a time and not an entire mess like we are dealign with today. This is just one part and does not preclude the government, media, and individuals such as ourselves from saying its all Wall Streets fault.
However, we don't reward people who's decisions ultimately led the company to almost go into bankruptcy as well as other affiliated companies which led to worldwide economic slowdown. You give them a carboard box to collect their things with and fire them. Isn't the right to terminate employment due to failure to perform in the employment contract too? I see your points but ultimately performance is performance and in the end with AIG went bankrupt these bonuses in the end would be moot.
But again, I do want to say I thoroughly enjoyed reading your measured article. We should always respect our opponent in debate regardless of opinion – unless its just hate speech – because by hearing alternate views we learn perspective and that knowledge in the end either rationlizes the solution or provides teh perfect argument for compromise.
What kind of talent are they keeping at AIG? TRULY talented people are leaders & can see both sides (risk and reward) and prevent things like this happening EVEN if as you claim, that people around them are going crazy with greed, because they are leaders and can go against the crowd. Since they obviously failed, they are not so talented as they claim. This means that they should resign without any compensation package because they screw up. If they don't resign, then let it fail so they won't even see a penny of their bonus and salry, or let the government have complete control and fire those execs. (you think donald trump will continue to keep a 'talent' exec). (Also, I mean I'm not that talented, but I did foresee the housing market clearly when
everyone around me blindly say price will keep going up and that I'm wrong.. so how can they not see this happening.. they are greedy.. and greed is NOT a talent.. so f them all)
Also if they don't pay the exec bonus, it's good because it will be a new rule saying you perform extraordinary well, then you get a bonus, else you get nothing.. perform they regular duty is NOT a performance. you are paid to perform that regular duty. So this can set as a predecent to avoid things like that home depot CEO who got paid big even though he screw up. CEO are not real leaders in my opinion ever since I realized these things happen. Real leaders care for their people, can set a good example.
I liked the article, and thought it raised some good points. It seems that many of you didn't read the article all the way through, or are just ignoring parts of it to form your rants. It says that there's a difference between the "differed compensation" and the AIG situation. So it isn't the same thing. AIG is contractually obligated to pay out these bonuses that were signed last year when things were going well. It isn't like they were given the money and said, "Hey! Everyone who wants a huge bonus this year raise your hand." Personally, I don't like the idea of the government stepping in and saying that the contract is invalid. I think it sets a dangerous precedent. We're ALL at fault for what's happened, so let's just accept it and learn from it so that it doesn't happen again.
What? Do financial and political programs on CNN turn into shouting matches? Really?
So let me get this straight: you are trying to convince us that we need to feel sorry that these people at AIG (or other Wall Street firms) stand to lose $200k out of their promised $300k compensation? Because a contract says so? Because otherwise they will leave?
No, No, and No!
See, that still would leave them with $100k and a job. That is a lot more than most of us out here in the real world. And if they want to enforce the contract, let them go to court. Where would they find a jury that sides with them? But most importantly: if they want to leave, LET THEM! Look where their "expertise" got their company, their country, and the whole world...
That's all fine Jill but I assume that the people in the know at AIG must have known that their business activities were eventually going to implode. They had to have known because they were AIG's "best and brightest". I am in the insurance industry. AIG's insurance components were, up until lately, considered very strong and have made vast fortunes for the company...and rightfully so. The employees receiving bonuses for those units deserve them as they served their employer and shareholders well.
The trouble with the current bonuses is these employees added no value to the company. They came very close to bringing us to a financial "China syndrome" and they truly should be prosecuted. Fired at least. I think AIG has lost their focus and core values and I assume their mission statement is "whatever it takes to make money and hose the public at any cost"
The money given to AIG by Henry Paulson was to be used to provide solvency to the company, not to pay compensation to people who clearly did not earn any performance pay. What Jill is failing to say is that there is no way that any business unit could have been performing profitably when the company as a whole was losing billions of dollars. Greed turned capitalism into lust. The Reagan generation still exist aas the "me "generation. Getting performance pay for doing a bad job personifies stupidity. There can never be any justification for these people to take the money they did and tell the public to go to hell. This company is a monopoly on our economy and needs to be broken up like Ma Bell.
I couldn't agree more with fellow commentor, Colin Heichman. As I watched this interview unfold this morning, I was completely astonished by Mr. Mack's inability to shut his mouth and act courteous, as well as Ms. Chetry's inability to control the situation. The whole thing was so ridiculous that I ended up turning off the program.
With regard to Ms. Schlesinger's comments, I really appreciate the time you took to explain how one little misnomer in the grand scheme of things can turn into such a controversy. While I may not understand everything about this situation, I do think that the blame is spread far and wide. We all have to shift into responsibility mode now that we've taken quite enough time complaining about how much it sucks.
Where is the outrage at the administration for giving away our money without any knowledge of how it would be used. Bama, Frank Dodd Geithner are all naive as hell and their spending our good money after bad and with no understanding or control.
Since the government is in a huge deficit cut their salaries Barry why don't you lead by example and take 100 instead of the 400 since the country is losing money and there is a crisis and cut all governement worker salaries and pensions.
Are you kidding me. You just don't get it. There are millions of people out of work. Millions more who have lost their retirements. The people who are getting the bonuses are the ones who caused this with their greed. They are getting bonus checks funded by the people who they financially destroyed. How dare you say we were all to blame? The people who started this work for AIG, and are getting another pile of MY money. You say Congress and the regulators are to blame because they didn’t catch the greedy, irresponsible thieves at AGI, again you can’t be serious. President Obama can send the message that the American public would like Wall Street to get with an air strike on AIG headquarters. Maybe then the rest of Wall Street will wake up. The days of $6 million dollar bonuses for greed and reckless behavior are over.
I'm sorry. Poor, poor AIG. I am a teacher who gave up 3 days of pay to keep the boat afloat through the end of the year. My job is tied to performance. I need to show that my students are making GAINS. Performance in a financial company should equal hard work and PROFITS. No profits, no bonuses, no "deferred compensation".
I used to have an AIG account. There had been no profits on my money there since 2001. In fact, between their management fee and their losses, I had less than I started with. Guess what, I no longer have that account. Why should I continue to support people who do not manage my money in such a way that I earn profits? AND WHY WOULD I WANT TO GIVE THEM BONUSES???
Am I angry as a tax payer that works hard for money on a daily basis, to keep food on the table and a roof over my family's head? You bet I am.
Point taken. But isn't the assumption that employees of AIG get a salary and regular "deferred compensation" if they do well at their jobs (meaning acting in such a way that at least doesn't put the company at risk). But the very department who took foolhardy and incredibly stupid risks resulting in loss that significantly contributed to AIG's current dire straits, and these are some of the folks who are being "rewarded" for their "work".
Here's an analogy: A worker at McDonald's doesn't stop working in order to put more food out (and hence making the company more money). But while he's doing everything he can to make the company more money, he willingly does not clean the exhaust hood over the grill. After some time, the restaurant burns down because nobody was taking care of important preventative maintenance (cleaning the hood), and instead were blindly making more money for the company.
Let me ask Ms Schleisinger: Does she think the subject employee deserves a bonus because they did everything in their power to make more money for McDonalds? Is the restaurant burning down because of mindful neglect of the employees' other duties justified just because that employee chose instead to maximize the company's profits over all else?
In other words: we're not buying your drivel. Quit the condescensing tone and just accept the fact that others in your profession royally screwed up and deserve what is coming to them. Therefore, Ms Schleisinger deserved everything she got this morning.
I have some advice for those in Ms Schleisinger's profession: AIM HIGH!
Bitter Medicine! We will undoubtedly hear about more money grabbing by execs as their ship goes down. It's not the kind of public spirit we expect form Americans in a time of Crisis. Let us not forget what the prevailing attitude of our financial world had become. "Greed is Good" Michael Douglas declared in his role as a Wall Street guru.
We know that Greed destroys! As we wallow in misery and scream out for revenge we become just as wrong as those who created this mess. We will survive , rebuild a better system and prosecute the guilty. Tomorrow will bring more news of individuals caught up in the self indulgent ethics of a system out of controll. Now is the time to keep a civil mind and fix the system for the future.
Ms. Schlesinger, Don't give me the "We got into this together ..." BS. All my life I lived within my means. Paid cash, didn't make extravagant purchases or go on expensive vacations, bought used cars, retired my mortgage in ten years by doubling and tripling up on the payments, saved constantly, etc. How am I someone who "got into this together" with all the people who were completely irresponsible and all the Wall Streeters who made stupid risky bets and ruined our economy ? Please write another commentary and explain that!
Recall, nowhere in the article are bonuses said to be performance based. Granted, they are discretionary, but she specifically states that performance has nothing to do with it.
It seems to me that bonuses are paid as bonuses and not salary because that money seems to be used to actually continue to make more money. At least thats why I think she brought up the partners example. Granted, that may just be the origin, but I wouldn't be surprised if it still played out this way to some degree.
Now you can argue that because the company was going to fail, that the employees in question deserve to lose 2/3rds of their promised money (going by that example in the article). And to be honest I can see that being a perfectly reasonable fighting point for the taxpayers bailing this out.
Granted, I can also see the people working for AIG then taking another job instead of keeping a job where they are working at only 1/3rd the money they could get elsewhere.... which is probably why AIG paid the bonuses.
One glossed over point in the article was that when this bailout went through, no one talked about compensation limits. People, particularly Obama and the democrats DID talk about limiting these types of things. However, I remember the reasoning for not including such stipulations was that you didn't want companies to say no to the money...
Good rational argument from the other viewpoint; and you are right that it is the function of free journalism to provide both sides to a story! However the various arguments still don't fly! This is not everybody's fault! This absolutely primarily the fault of greed by American Banking leaders! Yes--We do need to lay blame where it belongs; and not let this happen again!!
If your decisions are bad and selfish and greedy–your bonuses should go away! It is outrageous that taxpayers are paying for this!! This outrage is not only normal-it is what is needed for our country right now!
Deferred compensation, okay. We will defer this compensation until the companys' performance is such that it can afford to pay out the deferred cpmpensation out of it's own fund. Or they can receive their "deferred compensation" in the line of stocks, that can not be sold, thus giving them their money based upon performance of the Company. Bottom line, you did good, the Company did poorly, guess what, you get to wait for your "deferred compensation" until the Company turns around.
Other alternative, we are having to release a bunch of executives who did great jobs in a failing company that no longer can afford to support them. Don't like it make a claim to the State Department of Labor for failure to pay due income and see what it gets you.
I've read your defense of wall street (and AIG & Merrill's) bonus arrangements and just don't buy it. I'm one of those kids of depression era folks who indeed has saved prudently all my life.
I've known at all times that my comp/bonuses would never approach
that of my buddies up in wall street but accepted that fact because i love what i do. Lots is said about performance driven compensation up there but frankly not a year goes by in my memory when scads of goldman sachs types, including 'also rans' if they have such types, don't get millions and millions in bonuses. Fine, that's the culture up there, cream off the top. But here we are, taxpayers, putting up a very expensive safety net to sevral outfits, AIG one of them , that would go down the tubes without our tax money. And what does their management do, but dig from the taxpayer's trough, to reward abject failure. And the process will surely dilute my retirement savings at age 65. you know what I'm talking about. We need a BIG change in attitude up there (everywhere really) or we're doomed to repeat. Asia is alughing at us, also fearful that their float (Treasury paper) will lose value......when do we wake up and pull together as the President urges us to do ?!
It's easier to demonize – we are very proficient at that. Instead of solely blaming greedy Wall Street, why do we not blame inept Congress for drafting a bailout bill that did not make transparent where the money goes and that it could NOT be used for bonuses.
My comment to the article is ti is bull crap. Under the example the woman is making $300K because she is in such a lucrative and nich industry. She is not and one fails to consider that this industry is in no way better serviced on New York than in London or Tokyo or anywhere else where the financial industry proliferates. I
n fact this is purely a product of the greedy on Wall Street as some form of acknowledgement that these people perform a job function that is so unique as to deserve these high salaries. Bull Crap. In fact this last year has told us they are not smart or do they really factually understand the industry they service. One last comment. My brother in law is a broker on Wall Street working for Morgan Stanley. He gets all his lunches catered in to the office from some very expensive catering services. In addtion he gets the top sports tickets and concert tickets as part of his perks. He also is way overpaid based on his BA in Business from Fordham. It is all about who you know on Wall Street and not what you know.
That is and always will be the case.
Ray on San Diego
well-said...
too many people are finding scapegoat for what had happened.
This commentary is ridiculous. No matter what you call it: "a bonus" or "deferred compensation" - in no other industry are employees paid astronomical amounts for doing a crappy job. No matter how you slice it, these folks made bad decisions while in positions of power and trust, resulting in bankruptcy. They should be subject to the same cuts in merit pay, bonuses, etc. that many other businesses and employees have been subject to in this poor economy . . .if not worse.
The concept of a bonus or deferred compensation (a rose by any other name) is supposed to be pay for performance. If everyone 'did their job' as Ms. Schlesinger argued, then how does the company end up in the sorry shape it is in. When you take a job for a company, it is understood that anything beyond the base salary is based on personal performance AND how that refelects in company performance. You wouldn't pay a bus driver extra money for skillfully driving a bus off a cliff. How is paying AIG staff money for driving the company into the ground at all logical? Like the bus that went off the cliff, they had time to see it coming and get off. If they chose not to, they do not deserve extra compensation for failing to get off in time. Such is the risk of employment in the private sector. Just another example of this culture of corporate entitlement that has grown out of control in the US.
Your example is a tad misleading. I don't think what people have the problem with is the people making the extra 100k they were promised in pay. It is the 73 people that took home over a MILLION taxpayer dollars each. The top payout was 6.4 million! How is that justifiable? It would take me 128 years of working 50 hours a week to make 6.4 million, and I make more than a lot of people.
I think it is time for people to realize being a "rabid populist" or a "socialist" is a hell of a lot more American than excusing execs who run a company into the ground then leave with millions in compensation that was probably borrowed by our government from a foreign country.
Bottom line, we the People own 80 percent of the company, not only should there be no bonus for anyone, including the executive who approved the contract for these "employees", some of these executives should go to jail.
Thankfully, our AG, Andrew Cuomo is on the job, I hope he can not only stop the stupidity, but look for any way to prosecute the greedy executives at AIG, especially since we have now learned many of the recipients of our largess left the company.
The next step is get rid of Geitner, we just learned who has his loyalty, Wall Street and big business, because he didn't say one word about this abuse! Yes the Bush Administration is to blame for creating the monster without having any oversight or say about how the money is spent, but now we know we cannot trust Geitner either.
Off with his head, to quote the Red Queen in Alice in Wonderland.
Thank you for your analysis, but some of the blame should be shouldered by both the current and former adminstration. The bonus pool of a company is approved by the board of directors before being paid. As the taxpayers now "own" a major stake in several companies we should have had someone from Treasury or their represestative on the board to have stopped this!
If we "own" these companies then we have the responsibility to act like it.
The word I'm having trouble with is LEGACY. It's the cultural LEGACY of Wall Street and the rest of the players (correctly) mentioned that got us into this mess. How is it possible that LEGACY thinking is going to get us out of this? Look, the argument to pay huge sums of money when times are good is that the employees "earned" it – if you don't believe them, just look how well the shareholders have fared in the good years. So when the shareholders see half of their wealth disapper, then why does this LEGACY thinking still apply? Sorry, new problems, new solutions. Lots of employees thought that their bonuses and 401K matches were secure based on LEGACY thinking, but that seems to have gone up in smoke, for now.
In your example about Jennifer and her $300,000 total compensation package you state that $200k is discretionary based on her performance. Since AIG was near collapse, how can they justify giving bonuses based on performance to anyone in the company? If the executives had done their jobs properly would AIG still be in such a precarious position? My guess, is that it would not. Therefore, they did not perform the duties of their position and should not be paid the bonuses.
Jill,
have you ever worked for a company that folded? You are lucky if you can get the personal stuff out of your desk, much less a multimillion dollar bonus.
AIG folded, except that we bailed it out. These 73 bonus recipients were unemployed and walking away with NOTHING if not for the good graces of the American tax payers.
If you really think these people deserved the money, why don't you publish each of their names so that we taxpayers can congratulate them ourselves?
Well said Ms. Schlesinger.... We are wasting time arguing the subject of pre-arranged bonuses that were negotiated as part of a compensation package (something which happens even at a VP level on Wall st.) well before -- hit the fan.... There are many people that work on Wall st. who can no longer afford their children's college tuition, credit card payments, mortgage etc as a result of their cut in bonus. In this instance these people relied on their bonuses as part of their total compensation. For example I have a friend who is Director at a major firm. Base salary is 125K her bonus for past 6 years has averaged 125+K. She lives like a woman (single parent mind you) who makes a salary of $250K. Keep in mind she's a Director of a major firm, works from 7 til 7 everyday and plays a major role at her firm. She has just suffered a 70% cut in her bonus. I know people reading this right now might say, " yeah well she makes a lot of money she can afford it or worse yet, that's what she deserves..... but does she really? There is a big big difference between these discretionary bonuses and the AIG issue. I love our President Obama, maybe a little more than the next man/woman, but I think even he's getting this a little twisted!
Wher is the outrage at Bama, Geithner, Frank Reid Pelousy who
While I recognize that wall street pays bonuses based on performance it is not an unreasonable leap to assume that had "Jennifer" as well as her co workers done a really exemplory job the firms like Lehman, AIG and Merrill would not have failed. Being that they did fail this year with AIG posting the largest quarterly loss in corporate history, Lehman falling like a house of cards and Merrill being saved by another ne'er do well in BoA it is safe to assume that Jennifer and her co-workers did a less than adequate job.
Looking at AIG, a publically traded INSURACE company (not an invesment partnership) they made bad bets on a product that was invented by someone who never even worked for the firm in Blythe Masters. It is a fact that these contracts are negotiated in a back room out of the light of day and not subject to regulation. Well in my mind AIG has changed owners. It is no longer owned by its shareholders but by the American taxpayer and as such I would hope that the AG of NY takes this into account when going after that money. If AIG wants to form a bonus pool then let then include the 100 million American workers who kept them in business and pay them 1 dollar a piece. The outrage is only beginning to bubble up here on this one and there is a sense that the people will not stand for much more
Thank you for some real journalism. It is important that we think deeply about the issues, as we try to navigate through this crisis. Ms .Schlesinger has written an excellent article, pointing out what we hopefully all understand – if and when we cool off a little. The issues involved are somewhat more complicated than soundbites can capture. Thank you for generating thoughtful disussion.
That said, I personally believe there is need for careful consideration by AIG here. Maybe the "bonuses" are legally binding, but as we say things like that, we are perhaps losing sight of anonther important issue. AIG uses words like "legally" and "business", but I have not heard the word "ethics". It is illogical, and possibly unethical, to have such bonuses paid out in a situatoin where the company could have failed, and left the employees with nothing at all. In the final analysis, the situation is bad. How can anyone justify a $300,000 salary/bonus/whatever under such circumstances, when indeed, some of that money is coming from those making only $35,000 / year?
Mrs. Schlesinger,
With power comes responsibility. Power is not only governing but also the power of wealth, money etc. These big-wigs at wall street had that power. Of course, when you earn in millions of $$$ that means you are expected to be way more accountable than an ordinary human trying to get by day-to-day's expenses. A part of that accountability is not only doing the job right in letter but also doing it right in spirit i,e., ethical. You can argue that there is no way to quantify the latter. But as you indicated, we are adults and no mature adult needs a lesson or advise on what ethics mean in his/her job.
You said right, we are in it together and should get out together. Absolutely right, the ordinary human has already taken his tab for the amount of damage he could have caused with his meagre if not miniscule reach into the economy – read – layoff, loss of home, expense cut down etc. Its only reasonable to expect that the other side, that is the big-wigs who had more control and bigger contributions to creating the mess, take commensurate blow to their fortunes as well. And giving up a bonus is not at all commensurate, its just a starting point for whats expected out of them.
Well each group involved has to pay the price.
As an investor who did not play my role I have lost money, as a tax-payer who failed to hold my representatives accountable I am commiting to huge sums of my future income for the recovery effort, some politicians have paid the price and more will pay in the coming elections, home owners who borrowed beyond their means are paying their dues.
Now my question is, when will wall street people pay their dues ?
These people both US politicians and wall street executives should face trial for the fraud they have committed with the "people's" tax money. If a normal citizen (taxpayer) failed to miss just one year's worth of tax liability they would be jailed; why i ask aren't these people held to the same laws and justice? I hope washington smartens up soon before we the people have a revolution and ouasts them from their positions. Americans (citizens) have had enough of the lies and deceipt that is Washington politics, give us a government that supports citizens not billionare agendas and bailouts.
I think the bonuses should be paid if that was in the contract. It is not anyones business to intrude into the employee records to review performance, payroll and other records. I am sure these people were given direction from Execs on the investment choices of the company.
Are we not supposed to be stimulating the economy anyway!
Here is another example of spin masters making elaborate excuses to cover up the plain and simple facts, ie GREED. It just goes to show that Wall St. nor our politicians can be trusted to protect the common people while laws and regulations ( or lack of ) is dictated by the wealthy corporations. Do our elected officials expect us to believe they look out for us when the big money lobbying firms are the major donors to election campaigns? Yes, they hope we don't notice while they pontificate the benefits we supposedly derive from their actions. The majority of Americans were against the bailouts, yet these elected representatives served their benefactors instead of the people they were elected to serve. Karl Marx was wrong!! Political double talk is the opiate of the masses. And I'm sure the politicians and CEOs want to keep us as sedated as possible while they ruin this once great country.
Good argument about deferred comp- here's one for performance based comp that I think holds water as well...
Let's look at a hypothetical situation:
IBank & Co loses $20bn in 2008 and gets $10bn in bailout funds. Imagine there is a brilliant trader at IBank & Co named Joe, and Joe's trades earn $300mm dollars for the firm (definitely not unheard of). For his efforts, Joe is granted a bonus of $10mm (also not unheard of).
Is that outrageous? I don't think so. Why not? Because if Joe didn't do his job so well, IBank & Co would have lost $20.3bn and would have needed $300mm more from taxpayers...
Think about it- if we could spend $10mm to save ourselves $300mm in bailout funds we'd do so *immediately* or we'd be crazy. It'd be the best return on "bailout" investment imaginable...
So here's what happens now... IBank says "sorry, Joe, we can't pay you this year- people would go crazy." Joe says "OK, well then I'm outta here to go start my own hedge fund that is not regulated." The 2nd string replacement brought in for Joe does not perform nearly as well and IBank & Co's needs another $300mm to cover his losses. At least that greedy bastard Joe didn't make more money than all of us!
We humans are sometimes pretty irrational... Check out the Ultimatum Game - http://en.wikipedia.org/wiki/Ultimatum_game. We'd rather lose $2 than see someone else make $8.
It's not that complicated. If it were not for the taxpayers, there wouldn't be money available to pay these bonuses. We should honor those who come forward to publicly renounce and return their AIG bonus checks as a patriotic gesture. Maybe then others will follow by example, demonstrating that they know right from wrong.
Mrs.Schlesinger's title explains her position. She is a financial advisor and as such has a vested interest in the status quo on Wall Street. An amazing number of people make their living by doing nothing but essentially playing high stakes Monopoly with other people's money. The power to set your own salary has naturally fostered greed and corruption. The American people have allowed it to happen by refusing to question the regulators, board members and "advisors".
The situation will probably not change even in this environment but now that people are aware of how useless and powerless these people are, we will at least look over their shoulders from time to time.
Tax the bonuses back to the taxpayers. Simple.
What about the 500 FEDERAL PENSION MILLIONAIRES retiring EACH DAY!!??
Somebody look at what FDR did re: Fed pay – Obama did it on his staff; where is the Public employee union stance on this pay/pension boondoggle?
When will the real discussions start by the mainstream media?
AIG is not responsible to the shareholders. It is not responsible to the government because it is not nationalized . We won't under capital system. Our congrss is very stupid not to put any strings when bailout is given out, AIG can do whatever they want, whenever they want. We have to blame ourselves having crazy system.
Ms Schlesinger:
This post and your appearance took great courage. While I am very, very impressed with your candor and the clarity of your example, I just have a question: what took you so long to speak up?
I completely understand this crisis is not a one-person show; nor do I believe everyone is guiltless. But an honest, clear explanation of the workings of Wall Street and its ancillary industries would be extremely helpful for the public.
I didn't see your appearance and based upon the comments and your reaction, I'm glad I didn't see it – I'm tired of the shouting. We need discussion. It may be rancorous at times, but a good host knows when to rein it in (Ms.Chetry – you should be ashamed, if these comments are correct). Thank you for your explanation, but moreover, thank you for your courage. You should change the title of your next interview/segment and call it "Explaining What Goes on Behind the Curtain."
I don't think anyone would disagree that there were a number of participants who made the financial meltdown possible. However, when a public company has to turn to the government for a bailout to continue operations, it's no longer business as usual. When a startup company is running out of cash and needs a white knight to come in with additional funding, the last money in dictates terms. The US taxpayer is the white knight and we should be wielding a big stick to change how failed companies are operating. You can call it populist anger. I'm calling it smart venture investing.
I went through simular situation in the airline industry. Remember we (the airline industry) was in this resusion back in the 90's. At that time the employees, were asked to take cuts in pay and benifits all to make a profit for the stockholders and keep the airline in business. Because it would help a great deal the sr. officers in the company were given hugh bonuses. When questioned we were told that was to retain these talented people. My question always was; "if they are so talented, then how did we get in this mess to start with? They must have made a lote of mistakes with the handeling of the money we worked and earned for the company." I have neve recieved an answer.
If the AIG exectives were doing their job and deserved a bonus, then the company would not have needed a bailout. REMEMBER, BONUSES ARE EARNED, NOT GIVEN.
Jill's comments are just a wee bit off, and sound a bit like renaming something to redefine it, and then redefining it to establish what rules to "play" by. And before you skim the rest of this, let me say I supported the bailout in hopes it would prevent the loss of thousands upon thousands of jobs, both directly and indirectly. Now, I'm not so sure it was the right signal to send.
Jill makes it sound like the cash and stock "bonus" that wasn't was due the employee for signing on. Yet, she says it depended on the individual and their unit "doing their job". Was part of that job financial meltdown? I don't think so. Part of that job was successful (profitable) management of the investments. Surely the employees at many levels shared some of there responsibility for the (ahem) lackluster performance at AIG.
The number of shares in stock that tanked should not be increased to account for the drop in value, nor the stock be replaced with cash. If you accept a stock option as compensation, that is part of the performance-based risk you sign up for. If the cash portion of this "deferred compensation" was also performance based, there is justification for reviewing the performance and adjusting the compensation accordingly.
If, however, AIG is simply paying out the money, their actions imply they believe they and their employees bear no responsibility for the loss in corporate value, which is nonsense. It makes it seem as if business as usual is to assume nobody did anything wrong and everyone BUT the taxpayer should be made whole, as long as taxpayers can be bled. If this is AIG's corporate attitude, then perhaps the company SHOULD be allowed to collapse or become wholly owned and controlled by the government.
There are going to be some fat cats who skated away with huge lumps of "deferred compensation" funded by tax dollars. The stink this creates could reshape the industry, one way or another.
They tanked their company, therefore no bonus. Bonuses are for top performers, that's why they're called bonuses. How hard is that?
So Ms. Schlesinger, was the TON of money these people made over the last upteen years REAL? Or just a cooking of the books so a couple of hundred crooks could make a KILLING on their "retention" bonuses. Interesting that 11 of the top 73 bonus receipients at AIG no longer work there (reported at 11:00 AM PST). Retention Bonuses....another lie people like you perpetuate. If these were the "best and brightest" people and they got AIG into this terrible mess, they are obviously not the best and brightest. Give me the dumb ones and let's see what they can do. Apparently monkeys throwing darts at a stock board do pretty well in the market....and they work for banannas and peanuts.
Come work for my company. This year we have
1. Forfeted all 401K matching funds from my employer
2. NO overtime....NO question! That is how people that do REAL work earn extra money....not on the backs of taxpayers
3. 10% pay cut until at least 3rd quarter....NO exceptions!
4. Hiring freeze. Just so you can understand, that means we all have to work harder (without overtime) to do the job, because we are not replacing positions once someone leaves.
5. Cut dental coverage from our company health care plan
6. NO BONUS for 2008 work.....even though I put in 2380 (300 hours of OT) hours last year for my company...which is still profitable.
Until you get your MBA behind out of your chair and come see what it is like to actually make and produce something (do WORK) for a living, go take your bonus and stick it where the sun don't shine.
What a crock. Mrs. Schlesinger, you state in your piece:
"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."
I think we can agree that 2008 can be characterized as NOT in the "most years" category. Therefore, the firm should not pay out discretionary bonuses. Period. The game is to socialize losses and privatize profits. You are shrouding that time honored tradition with your disingenuous words.
In bad times the financial community looks for a bag holder to hold the bag of losses. Once again it is the American taxpayer. Shame on you for perpetuating this immorality.
Americans have no basic problem with people who make a TON of money when it is based on profitable, ethical, enterprise. But when a company requires taxpayers money to keep it from imploding, the company's employees need to suck it up. Regular Joes get laid off in similar situations. I don't see you writing pieces about how they should not be downsized.
Why is that so hard for you to fathom?
Bonuses not tied to profitability? A company needs to be profitable to continue in business. A company needs its employees to make efforts, that is successful efforts to make their company profitable and that is where the bonus is supposed to come it. The bonus is the carrot for the employee to motivate them to work extra hard. To suggest that a bonus is in place with no correlation between the employee's work contribution and the company's positive bottom line is insane to say the least. Whoever thinks that bonuses should be in place irregardless of profitability is the manager of a failing business – gee that a surprise!
This is pure bull!
Class warefare was started by the greed of wall street and so called "financial planners" such as yourself and others who still don't appear to understand the fundamental problems in the economy. Your ilk have been taking a disproportionate share of wealth from the middle class through clever manipulation of the financial systems and lobbying power for a number of years. Now your greed, stupidity and poor "financial planning" advice have wiped out many retirements, all the while insisting that they should take more responsibility for it. How dare you accuse them of class warfare when the likes of you started it and continue to wage it to their detriment.
The salaries, bonuses and compensation packages on wall street are grossly disproportionate to their worth. Only because of the Congress, White House, US Treasury and the FED's enabling of leverage and backing of these institutions could they exist. So, it is the taxpayer who is making their jobs possible in the first place. Why pay their exportitant salaries for such a priveledge and sweet deal?
Lastly, the dumb implication that they will go elsewhere, if they don't get their bonus is absolutely insane. Where are they going to go? Bear Sterns? Lehman Bros.? I am sure Bank of America would love to get these failures.
What garbage.
When you are coerced to pay people to help you get out of a mess that they themselves created, it is called blackmail not bonuses.
The other way to handle these people is called plea bargaining. We threaten to lock them up in jail unless they correct the mess they got us into in the first place.
Americans do not have a problem paying bonuses to people who create wealth or who are exceptional in their field and where we find value.
Americans have a real problem paying bonuses to people who are really crooks and incompetents.
Your example of Jennifer receiving $100K base and $200K at year-end 'if she did her job', is just pure nonsense. Any ‘target comp’ has to [first] include that the business unit makes its 'target profit' or there is no bonus. I have worked in corporate positions for many years and have always had that caveat applied to my bonus. Without tying bonuses to profit targets, you get what AIG got…plain nonsense.
If AIG tanked at the end of last year ,why did they get bonuses? if bonuses are based on performance. I don't get it 🙁
I totally agree with the comments of Colin Heichman. Whether you agree with Mr. Mack or with Ms. Schlesinger or neither, the conduct of Mr. Mack was appalling, direspectful, immature. And Ms. Chetry made no effort to allow Ms. Schlesinger an opportunity to educate the audience.
And to Ms. Alesia Wells, you should have gone (not went) into Finance. If I were you I wouldn't boast about being a college graduate.
I'd rather buy a suit from a guy on salary as compared to a weasel looking to score "deferred compensation". The whole system is broke and AIG, and everyone else, is the big loser.
If you do a little research you'll find out that AIG was founded by Ken Starr's uncle. Yep that Ken Starr. You might recall that he had no qualms spending millions of taxpayer dollars in the 90's going after the Clinton's over Whitewater.
To congress I say go get them.
Why don't we have wallstreet live by the rules of capitolism like the rest of us? and...what's so bad about populism? Wouldn't it be best to have the American Gov't favor the needs of the most Americans.....for a change?
It is always important to hear both sides of a story. If the company was contractually obligated to pay the bonuses, then paying the bonuses was the right thing to do. I am not convinced that accepting the bonuses (on the part of the employees, especially those who knew they were about to jump ship) was also the right thing to do, from a moral standpoint. If the company that I had helped run was sinking, and I had already been paid millions of dollars in compensation (which the majority of people in this country will never earn), I might just make the decision to say no to the bonuses in the current economic climate. You mention that many Wall Street employees took large cuts and I find that very appropriate.
Good governance and risk controls are certainly important, and much of my anger over the situation does have to do with the lack of them. The Clinton and Bush administrations got that wrong. However since the majority of Americans will never, ever make salaries on par with what is being discussed the in the media with respect to this crisis I find the issue of what you have called "class warfare" to be relevant to the discussion. I agree that it was not only Wall Street that was greedy, and the fact that the greediness is so widespread upsets me too. However, the fact remains that there were far too many decision makers/top executives who were making shortsighted decisions that they knew were not only bad decisions but dangerous ones, and raking in millions in compensation at the same time.
There are many, many of us who are stuck in the middle of this mess who did not forget the simple rules that we learned from our parents, who didn't buy more house than we could afford, who did save, who weren't greedy, and yes, we are angry that we are in this mess along with everyone else. We are very, very angry about the greed, corruption, poor decisions, poor policy making, and shortsightedness that has landed us here. It's time someone stood up, took responsibility where appropriate, and (gasp) gave back some of their ill-gotten gains.
I understand the point about bonuses, yet no matter how you want to paint this picture– taxpayer dollars are paying for compensation of many individuals who made bad decisions.
There is this 'ivory tower' perspective at work here that suggests that the rest of the public doesn't understand this arrangement. Nonsense.
What Ms. Schlesinger's "grey area" analysis fails to address, however, is the standard OP's followed by the boards of larger companies – that is – controling the shareholder vote by proxy, or by already owning a controling share in one of a hundered different ways.
I agree that pay should be regulated by 1) the market, and 2) performance, but what if the market is a false market, or a manufactured market? The larger systemic economic problems aside, one only needs to examine the pay trends of executive pay to see that greed is an issue (albeit a smaller issue than many belive) that must be covered.
Could unwinding derivatives really be all that hard? I have a Master's degree in electrical engineering and fifteen years experience, and I don't make near the amount a junior employee of one of these financial services companies make.
I don't get it. Will someone please remind me what valuable services these companies provide (any financial services companies)? What do they do? Create structured investment vehicles? Invent collateralized debt obligations? That helps us all how? All I can figure out is that the financial services industry allowed a very small group of people to get fantastically rich at the expense of all the rest of us.
If I could give one piece of advice to an AIG employee (of any financial services employee) it would be - Quit, and do something useful with your life. If you are really smart, put your mind to work on a trying to cure cancer, or invent a new energy source, or new farming technique. Learn science, engineering, or medicine, or anything where you can be a benefit to others. Stop chasing money. You'll fell better, and society will benefit as well.
Point #1: One of the reasons the CEO gave for paying these bonus was to retain "the best and the brightest." Please. These were the same people that got AIG into this mess to begin with. You really want to keep them? The problem with Wall Streeters is that they get paid bonus - win OR lose. I can't imagine that in their compensation packages, there isn't SOME form of performance requirement. If there isn't, the board should be fired, too. That would have been the "out" in this situation. How can ANYONE justify paying ANYONE who helped bankrupt the company– and potentially hundreds of others with it? You can play out all the "sophisticated" arguments you want, but at SOME point, common sense has to be a factor.
Point #2: What would AIG have done bonus-wise had the federal gov't NOT bailed them out? What then? That should be the benchmark.
I get the fact that "Jennifer" expected the extra $200,000....I "expected" the money I had in my 401K for retirement......sometimes we don't get what we "expect"....and everyone needs to just be disappointed? The difference is that "Jen" won't get the new car and I'll be in a trailer "down by the river"!!!...........
But "Jennifer" is not the real problem...she probably did what she was supposed to do for her $300,000. My frustration is with her boss who didn't do what he was supposed to do, got a few million dollars, and then just left the company (according to Cuomo)....tell me why that is OK...........