March 16, 2009
Bonus Money at Troubled A.I.G. Draws Heavy Criticism
By EDMUND L. ANDREWS and PETER BAKER
WASHINGTON — Obama administration officials and Republicans alike were nearly universal in condemning the $165 million in bonuses that the American International Group, which has received more than $170 billion in taxpayer bailout money from the Treasury and Federal Reserve, is to pay executives in the business unit that brought the company to the brink of collapse last year.
“There are a lot of terrible things that have happened in the last 18 months, but what’s happened at A.I.G. is the most outrageous,” said Lawrence H. Summers, President Obama’s chief economic adviser, during an appearance Sunday on ABC’s “This Week With George Stephanopoulos.” “What that company did, the way it was not regulated, the way no one was watching, what’s proved necessary — is outrageous.”
The bonus plan established for the financial products unit before the federal government stepped in called for $220 million in retention pay for 400 employees for 2008. About $55 million of that was paid in December and the remaining $165 million was paid on Friday.
The retention plan also calls for another $230 million in bonuses for 2009 that are due to be paid by March 2010. Combined with the 2008 bonuses, that would bring the total retention pay for financial products executives to $450 million. But in response to pressure from Treasury Secretary Timothy F. Geithner, A.I.G. agreed to reduce its 2009 bonuses for the financial products unit by 30 percent.
The payments to executives in that unit are in addition to $121 million in previously scheduled bonuses for the company’s senior executives and 6,400 employees across the sprawling corporation. Last week, Mr. Geithner pressured A.I.G. to cut the $9.6 million going to the top 50 executives in half and tie the rest to performance.
The payment of so much money at a company at the heart of the financial collapse that sent the broader economy into a tailspin will almost certainly fuel a popular backlash against the government’s efforts to prop up Wall Street.
Word of the bonuses last week stirred such deep consternation inside the Obama administration that Mr. Geithner told the firm they were unacceptable and demanded they be renegotiated, a senior administration official said. But the bonuses will go forward because lawyers said the firm was contractually obligated to pay them.
Austan Goolsbee, staff director of the president’s Economic Recovery Advisory Board, on Sunday detailed Mr. Geithner’s reaction.
“He stepped in and berated them, got them to reduce the bonuses following every legal means he has to do this,” Mr. Goolsbee said on “Fox News Sunday.” “I don’t know why they would follow a policy that’s really not sensible, is obviously going to ignite the ire of millions of people, and we’ve done exactly what we can do to prevent this kind of thing from happening again.
Mr. Summers suggested that the government’s ability to require the bonuses be scaled back was restricted by preexisting contracts, even though he did not specify what those restrictions may be.
“We are a country of law,” said Mr. Summers, one of several economic officials to hit the Sunday-morning talk show circuit. “There are contracts. The government cannot just abrogate contracts. Every legal step possible to limit those bonuses is being taken by Secretary Geithner and by the Federal Reserve system.”
Mr. Goolsbee explained it this way: “I think the root of the problem has been some of the people have things written in their contract that say, ‘Look, you sell this much life insurance, you get a bonus of X,’ and it’s in their contract and that part can’t be changed.”
Mr. Summers also appeared on CBS’s “Face the Nation,” remaining consistent in his core message about the bonuses: “It is outrageous. The whole situation at AIG is outrageous. What taxpayers are being forced to do is outrageous.”
Sen. Mitch McConnell, the Republican minority leader, worried about the message the bonuses send to other companies receiving bailout money. “If you’re going to take the government as a partner, the message here, I’m afraid, to any business out there that’s thinking about taking government money, is “Let’s enter into a bunch of contracts real quick, and we’ll have the taxpayers pay bonuses to our employees,’ ” he said on “This Week.”
But Mr. McConnell, a Republican from Kentucky, also criticized the Obama administration.
“For them to simply sit there and blame it on the previous administration or claim contract — we all know that contracts are valid in this country, but they need to be looked at,” he said. “Did they enter into these contracts knowing full well that, as a practical matter, the taxpayers of the United States were going to be reimbursing their employees? Particularly employees who got them into this mess in the first place. I think it’s an outrage.”
Bonus Money at Troubled A.I.G. Draws Heavy Criticism
By EDMUND L. ANDREWS and PETER BAKER
WASHINGTON — Obama administration officials and Republicans alike were nearly universal in condemning the $165 million in bonuses that the American International Group, which has received more than $170 billion in taxpayer bailout money from the Treasury and Federal Reserve, is to pay executives in the business unit that brought the company to the brink of collapse last year.
“There are a lot of terrible things that have happened in the last 18 months, but what’s happened at A.I.G. is the most outrageous,” said Lawrence H. Summers, President Obama’s chief economic adviser, during an appearance Sunday on ABC’s “This Week With George Stephanopoulos.” “What that company did, the way it was not regulated, the way no one was watching, what’s proved necessary — is outrageous.”
The bonus plan established for the financial products unit before the federal government stepped in called for $220 million in retention pay for 400 employees for 2008. About $55 million of that was paid in December and the remaining $165 million was paid on Friday.
The retention plan also calls for another $230 million in bonuses for 2009 that are due to be paid by March 2010. Combined with the 2008 bonuses, that would bring the total retention pay for financial products executives to $450 million. But in response to pressure from Treasury Secretary Timothy F. Geithner, A.I.G. agreed to reduce its 2009 bonuses for the financial products unit by 30 percent.
The payments to executives in that unit are in addition to $121 million in previously scheduled bonuses for the company’s senior executives and 6,400 employees across the sprawling corporation. Last week, Mr. Geithner pressured A.I.G. to cut the $9.6 million going to the top 50 executives in half and tie the rest to performance.
The payment of so much money at a company at the heart of the financial collapse that sent the broader economy into a tailspin will almost certainly fuel a popular backlash against the government’s efforts to prop up Wall Street.
Word of the bonuses last week stirred such deep consternation inside the Obama administration that Mr. Geithner told the firm they were unacceptable and demanded they be renegotiated, a senior administration official said. But the bonuses will go forward because lawyers said the firm was contractually obligated to pay them.
Austan Goolsbee, staff director of the president’s Economic Recovery Advisory Board, on Sunday detailed Mr. Geithner’s reaction.
“He stepped in and berated them, got them to reduce the bonuses following every legal means he has to do this,” Mr. Goolsbee said on “Fox News Sunday.” “I don’t know why they would follow a policy that’s really not sensible, is obviously going to ignite the ire of millions of people, and we’ve done exactly what we can do to prevent this kind of thing from happening again.
Mr. Summers suggested that the government’s ability to require the bonuses be scaled back was restricted by preexisting contracts, even though he did not specify what those restrictions may be.
“We are a country of law,” said Mr. Summers, one of several economic officials to hit the Sunday-morning talk show circuit. “There are contracts. The government cannot just abrogate contracts. Every legal step possible to limit those bonuses is being taken by Secretary Geithner and by the Federal Reserve system.”
Mr. Goolsbee explained it this way: “I think the root of the problem has been some of the people have things written in their contract that say, ‘Look, you sell this much life insurance, you get a bonus of X,’ and it’s in their contract and that part can’t be changed.”
Mr. Summers also appeared on CBS’s “Face the Nation,” remaining consistent in his core message about the bonuses: “It is outrageous. The whole situation at AIG is outrageous. What taxpayers are being forced to do is outrageous.”
Sen. Mitch McConnell, the Republican minority leader, worried about the message the bonuses send to other companies receiving bailout money. “If you’re going to take the government as a partner, the message here, I’m afraid, to any business out there that’s thinking about taking government money, is “Let’s enter into a bunch of contracts real quick, and we’ll have the taxpayers pay bonuses to our employees,’ ” he said on “This Week.”
But Mr. McConnell, a Republican from Kentucky, also criticized the Obama administration.
“For them to simply sit there and blame it on the previous administration or claim contract — we all know that contracts are valid in this country, but they need to be looked at,” he said. “Did they enter into these contracts knowing full well that, as a practical matter, the taxpayers of the United States were going to be reimbursing their employees? Particularly employees who got them into this mess in the first place. I think it’s an outrage.”
