AIG Makes Controversial Decision to Pay Out $165M in Retention Bonuses

Rich Edson of FoxBusiness reported yesterday that AIG plans to pay $165 million in retention bonuses “at the division that has drawn most of the heat for the company’s near-collapse.” Currently, AIG is 79.9% owned by the federal government after the Treasury Department and Federal Reserve committed up to $170 billion in bailout funding to help AIG stabilize itself.

AIG’s announcement that it will pay $165 million in bonuses comes on the heels of its disclosure last year that it would pay $450 million in bonuses to keep employees at AIG Financial Products, which is the division that focused on the controversial credit default swaps.

According to Edson, AIG recognizes the controversy and it criticism that its bonus payments will attract, but says that the bonuses are a necessary tool for helping the taxpayer-owned company turn itself around and provide a future return on investment.

“We cannot attract and retain the best and brightest talent to lead and staff the AIG businesses which are now being operated on behalf of the American taxpayers,” AIG chairman and CEO Edward Liddy said in a letter to Treasury Secretary Timothy Geithner on Saturday.

AIG said that while it will do everything in its power to reduce the bonus payouts, its hands are tied legally, as it is contractually obligated to pay the bonuses. The company should have more flexibility to reduce bonus payments in 2009, which it says it will do. Government officials have said that they will be “very involved” in making sure that bonus payments are reduced as much as possible.

AIG’s story is, of course, not unique — and raises interesting corporate governance questions.

Many companies that crashed this past year, and that received government bailout funding, face the conundrum of being contractually obligated to pay bonuses and now having to use taxpayer funding to do so. Additionally, now that these companies are being funded with taxpayer dollars, it is imperative that the companies turn around and provide a return on that investment to help the economy recover. Retention bonuses, as stated by AIG, are seen as a necessary tool to ensure that the best possible executive and managerial talent is making the decisions to steer the company’s future course in a profitable direction.

What do you think AIG should do?

  • Is AIG handling this situation the right way?
  • Are these retention bonuses, despite how they look to the casual observer, actually a worthwhile use of the bailout funding?
  • Or should companies like AIG do whatever is necessary to bite the bullet now and moving forward to not give the appearance that poor performance is being rewarded?

(source: http://www.corporatecomplianceinsights.com/2009/aig-to-pay-165-million-retention-bonuses)

Richard Reid is the founder of Pinnacle Proactive, Specialising in the Employee Assistance ProgramStress ManagementStaff Retention & Absenteeism. Take a Proactive Approach to Growing Your Organisation & its People. For more info visit http://www.pinnacleproactive.com

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