NY AG: AIG Paying "Retention" Bonuses To People Who Left The Company
New York Attorney General Andrew Cuomo has written a letter to House Financial Services Chairman Barney Frank, offering some advice on what topics they might discuss at tomorrow's AIG hearing. Among them: Giving "retention" bonuses to people who have left the company, making 73 millionaires in "the unit which lost so much money that it brought the firm to its knees" and the fact that without a taxpayer bailout — the "best and brightest" at AIG wouldn't have jobs from which to collect impressive guaranteed bonuses.
Cuomo also says that he's taken a look at the "independent legal analysis" that concluded that contracts prevented AIG from getting out of paying the bonuses:
"AIG now claims that it had no choice but to pay these sums because of the unalterable terms of the plan. However, had the federal government not bailed out AIG with billions in taxpayer funds, the firm likely would have gone bankrupt, and surely no payments would have been made out of the plan. My Office has reviewed the legal opinion that AIG obtained from its own counsel, and it is not at all clear that these lawyers even considered the argument that it is only by the grace of American taxpayers that members of Financial Products even have jobs, let alone a pool of retention bonus money. I hope the Committee will take up this issue at its hearing tomorrow."
Here's the full letter:
Honorable Barney Frank Chairman,
House Committee on Financial Services
United States House of Representatives
2129 Rayburn House Office Building
Washington, DC 20515Re: AIG 2008 Retention Bonuses
Dear Chairman Frank:
I am writing to provide you and your Committee with information regarding an ongoing investigation my Office has been conducting of executive compensation at American International Group ("AIG"). I hope this information will be useful to the Committee at its hearing on AIG tomorrow.
We learned over the weekend that AIG had, last Friday, distributed more than $160 million in retention payments to members of its Financial Products Subsidiary, the unit of AIG that was principally responsible for the firm's meltdown. Last October, AIG agreed to my Office's demand that no payments be made out of its $600 million Financial Products deferred compensation pool. While this was a positive step, we were dismayed to learn after the fact that AIG had made multi-million dollar payments out of its separate Financial Products retention plan on Friday.
AIG now claims that it had no choice but to pay these sums because of the unalterable terms of the plan.However, had the federal government not bailed out AIG with billions in taxpayer funds, the firm likely would have gone bankrupt, and surely no payments would have been made out of the plan. My Office has reviewed the legal opinion that AIG obtained from its own counsel, and it is not at all clear that these lawyers even considered the argument that it is only by the grace of American taxpayers that members of Financial Products even have jobs, let alone a pool of retention bonus money. I hope the Committee will take up this issue at its hearing tomorrow.
Furthermore, we know that AIG was able to bargain with its Financial Products employees since these employees have agreed to take salaries of $ I for 2009 in exchange for receiving their retention bonus packages. The fact that AIG engaged in this negotiation flies inthe face of AIG's assertion that it had no choice but to make these lavish multi-million dollar bonus payments. It appears that AIG had far more leverage than they now claim.
AIG also claims that retention of individuals at Financial Products was vital to unwinding the subsidiary's business. However, to date, AIG has been unwilling to disclose the names of those who received these retention payments making it impossible to test their claim. Moreover, as detailed below, numerous individuals who received large "retention" bonuses are no longer at the firm. Until we obtain the names of these individuals, it is impossible to determine when and why they left the firm and how it is that they received these payments.
If AIG were confident in its claim that those who received these large bonuses were so vital to the orderly unwinding of the unit, one would expect them to freely provide the names and positions of those who got these bonuses. My Office will continue to seek an explanation for why each one of these individuals was so crucial to keep aboard that they were paid handsomely despite the unit's disastrous performance.
As you may know, my Office yesterday subpoenaed AIG for the names of those who received these bonuses, and we plan to do everything necessary to enforce compliance. American taxpayers deserve to know where their money is going, and AIG's intransigence and desire to obscure who received these payments should not be tolerated. Already my Office has determined that some of these bonuses were staggering in size.
For example:
- The top recipient received more than $6.4 million;
- The top seven bonus recipients received more than $4 million each;
- The top ten bonus recipients received a combined $42 million;
- 22 individuals received bonuses of $2 million or more, and combined they received more than $72 million;
- 73 individuals received bonuses of $1 million or more; and
- Eleven of the individuals who received "retention" bonuses of $1 million or more are no longer working at AIG, including one who received $4.6 million;
Again, these payments were all made to individuals in the subsidiary whose performance led to crushing losses and the near failure of AIG. Thus, last week, AIG made more than 73 millionaires in the unit which lost so much money that it brought the firm to its knees, forcing a taxpayer bailout. Something is deeply wrong with this outcome. I hope the Committee will address it head on.
We have also now obtained the contracts under which AIG decided to make these payments. The contracts shockingly contain a provision that required most individuals' bonuses to be 100% of their 2007 bonuses. Thus, in the Spring of last year, AIG chose to lock in bonuses for 2008 at 2007 levels despite obvious signs that 2008 performance would be disastrous in comparison to the year before. My Office has thus begun to closely examine the circumstances under which the plan was created.
I look forward to continuing to cooperate with the Committee in any way possible to ensure that taxpayer funds are not misspent on unjustified bonuses or otherwise misused.
Andrew M. Cuomo ,
Attorney General of the State of New York
Re: AIG 2008 Retention Bonuses (PDF) [New York Attorney General's Office]
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Comments:
Someone please explain what good it does a company to pay off people who already left. I just flat don't get that.
Sometimes I think it would be nice to do things Fight Club style and *erase* everyone's debt. That would get everyone out of this mess.
Actually, I have no idea how that would work and it would probably cause a lot more problems. o.o
A boy can dream though.
Regardless of the outcome of all of this, and regardless of motivation I sincerely wish we had more people within the government who spoke out like AG Cuomo.
I don't care why he is pursuing this, and i don't care what he will get out of it in the end. it is simply completely refreshing to see someone digging into an issue and doing more than just 'wagging a finger' at the people who are being given taxpayer money and (gasp of surprise here) misusing it.
Let's call that money what it is: hush money.
I guranatee a lot of those people could come forward with stories that could put a lot of people in jail, if only there was an iota of political will to capitalize on it.
Suddenly this whole nonsense of ritual suicide may look like a very attractive option to some of the executives.
Just to be clear here... they didn't give retention bonuses to people that no longer worked for AIG. These employees left after the retention bonus.
I haven't seen the contracts. That said, I don't see any reason it isn't feasible for the retention bonus being made contingent on staying to a certain date even if the bonus is paid after that date and that someone could leave the company in the interim. Unless the contract said "must be present to win" I don't see why it's necessarily an issue that some have left.
I'd like to buy Mr. Cuomo a beer.
Because it's executives paying executives. AIG = "board of directors, CEO, CFO, etc". The board of directors is supposed to keep the CEO in check, but instead of doing this, they all chose to cooperate. They are basically all giving each other a big fat pat on the back for screwing the company, the economy, and the American taxpayers. The people that are no longer with the company are still part of the same "Old Boys Club", and are therefore still getting hooked up. Also, judging by the shady nature of the contracts they all had, there is a very good chance that a lot of these payouts are simply hush money.
@cuberat88
Shh!!! You're breaking the first rule!
Seriously, it would be great to get a little "payback," but is at least justice really to much to ask? If the people no longer work there, then how can the contracts be binding? Also how can the taxpayers be on the hook for the contracts if they took over a technically bankrupt company under duress (extenuating circumstances). I understand that AIG has a responsibility to hold up their end of a legal contract, but the American taxpayers were brought into this because AIG was basically a financial suicide bomber saying "rescue me or I take down the entire economy." You don't honestly negotiate with a terrorist, and in this circumstance the contracts should be considered unenforceable because the actions the people receiving the bonuses actually caused the company to become technically bankrupt and forced the hand to the government/taxpayers to rescue the company for fear of losing the whole economy (contract negotiation at the barrel of a gun so to speak).
@ Yossarian :
The amount of rage regarding this issue is clouding some of the fundamentals of contracts and there is some weird reporting on that.
Retention bonuses at private companies have existed for a long time and have never absolutely guaranteed you will keep that employee. Not sure why consumerist is bolding that or people are getting angry at that particular point.
I say as owner of 80% of AIG the US Government simply refuses to pay the bonuses. If any employees feel they have been wrong, let them sue AIG and let the names of those suing be released so the media can interview them and they can explain to the American people why they sunk the company yet feel entitled to sue for payment of a taxpayer funded bonus.
That should put an end to this right away.
All this uproar over contracts that were in place over a year ago and that make up less than one tenth of one percent of the amount of the bailout money they received...over 90 BILLION they promptly gave away to foreign banks.
Nothing but stoking the fires of class envy.
Dodd, to whom AIG was major campaign contributor, wrote in the exemption to the bailout bill that allowed these individuals to be paid. They will never be prosecuted, Dodd will never be prosecuted. Nothing to see here folks, glad to see you've spend all your rage on a privately held company because of the actions of your Government representatives.
That's what I wanted to know. Did the people they paid the "retention bonus" leave the company or retire? If they did, then it's clearly fraud and EVERYONE should be prosecuted!
Take as much government money and get out of town before you can't be hired somewhere else for sinking the company. I bet they are going to find fraud, money laundering and embezzlement.*HA!* Lot's of bonuses going to some CEO's dog in the Bahamas or deceased uncle for consulting work! Go get them!
Bring on the Healthcare!!!!
Oh FFS, enough's enough.
Just shoot everybody and charge the families for the bullets.
/exaggeration
What I would guess happened with the people who were payed the rentention bonus and then left is that the terms of the bonus were they would get payed if they were still employeed by a certain date, which is now past. After that date passed and they got their bonus they bailed on what is obviously a sinking company. People do this all the time. The problem is not that they took their bonus and ran, its that AIG offered them a bonus to begin with.
@philmin: Alrighty. It still blows a hole in their "we had to pay to keep our best people" argument.
My husband's idea is to give every American $30K instead of bailing out AIG. We'd pump the money back into the economy! Adding onto our houses, fixing them up, putting deposits on new houses or automobiles...! "Do you promise to spend it?" "Well, yes I do." Sweet!
@PLATTWORX: Shareholders elect the board. The board paid the bonuses. The taxpayers can elect a new board at the next shareholder meeting. The board was contractually obligated a year ago to pay the bonuses, but had no money to do so until they received bailout funds.
Canino makes an excellent point.
Just stop giving them money. Take back what was given and let 'em fail.
If there are pissed off AIG employees, that's what wikileaks.org and others were created for. Do the right thing!
@philmin
So, we should pay this out because that's the way AIG does business? Aren't we kind of at the point of saying that the way things have been done for a long time ain't really working out so hot?
Aw come on, gotta give them credit.
They were called the "best and the brightest" to do what they've done.
They actually deserve a lot of credit.
fuck you aig
they will not do anything to AIG... mark my words! there was a rush to give them money and no one stopped to read the fine print. the government (that we as voters allowed to stay in office) has screwed us once again.
change we can believe in! hooray!
they will ask them questions at the upcoming hearing, but, and this is the kicker... i bet they will give them even more money next month. bet, anyone?
the bush administration was at the wheel when the economy went out of control and crashed... the Obama administration will not do anything to these people... the ball is in Obama's hands so to speak and i am willing to bet that he doesn't do one damn thing to these people to punish them.
@philmin: I disagree. The bonuses checks in question were distributed last Friday (3/13). Are you claiming these employees left Friday afternoon or Monday morning? I believe you claim may be inaccurate.
lightaugust:Because stepping in with a bunch of after the fact conditions and abrogating contracts couldn't possibly have negative consequences in exchange for the feel good move of being on the soapbox over less that 1/1000th of the bailout amount.
Let's let the clowns in DC, particularly Dodd, who's in this up past his elbows, disgorge all the contributions they got from AIG before they start passing out the pitchforks and torches to go after the people getting the bonuses.
Shoot them all, let God sort them out!
These unscrupulous crooks got me ragin!
I'll take 1/10th of that bonus, and for my 600K a year I'll do a better job managing than these bozos- and I have a masters degree in special education.
@tc4b: Maybe it's so they'll stay away from AIG? Heh.
The correct answer is "because they can, and because no one has called them on it".
Yossarian: Agreed, if we stop to do the math, who cares? The amount is almost negligible. But I think the overall culture shift is the point here, that the excessive bonus culture was ridiculous, and continues to be. In addition, it's also proved harmful to the economy as a whole, despite years of being fed the idea that it wasn't. I see the point that AIG just may be the convenient target here, but I don't think the rage is misplaced either.
Filling with murderous rage.......!!!
Saw this just now in an AP story ([news.yahoo.com]):
"Sen. Charles Grassley suggested in an Iowa City radio interview on Monday that AIG executives should take a Japanese approach toward accepting responsibility by resigning or killing themselves.
"'Obviously, maybe they ought to be removed,' the Iowa Republican said. 'But I would suggest the first thing that would make me feel a little bit better toward them if they'd follow the Japanese example and come before the American people and take that deep bow and say, I'm sorry, and then either do one of two things: resign or go commit suicide.'
"Grassley said Tuesday he didn't actually mean for AIG employees to kill themselves."
I got a good, gleeful chuckle out of that ... until the last paragraph. Way to rain on my parade, Senator.
@philmin: AIG was in financial trouble. They were going to be bankrupt.
According to bankruptcy laws, when you file for bankruptcy you can review existing contracts for things like that and renegotiate... or cancel them.
Had AIG been left to fail they would not only not have had the money to pay the bonuses, they could have gotten out of the obligation to pay them.
Instead the gov'mint thought it was a good idea to subvert a system already in place because of some notion that the sky was falling and the very people in line to GET these bonuses and not have their contracts canceled were the ones that convinced congress it was, indeed, falling.
@lightaugust: That's where I am. I do take the point that this is nothing, financially speaking, but I think it's representative of the company's failure to grasp the nature of the world beyond its boundaries. And that's why they screwed up in the first place. So while I'm personally bitter about people getting multimillion-dollar bonuses for endangering most of our jobs and losing quite a few of them, I'm more globally concerned that this means they're not changing anything about the way they do business because they think they were unlucky, not wrong.
It's only a matter of time before an angry mob eventually storms the AIG boardroom armed with sacks of doorknobs to dispense a righteous beating.
If I were a restaurant owner near Wll Street I would be first to put up a sign reading "No shirt, no shoes, A.I.G. Fat Cats, NO SERVICE!"
Lucy, you got some splainin' to do!
@Yossarian: it's an issue b/c the argument for these bonuses was repeatedly, "we need to pay them or we'll lose our best & brightest - the people responsible for what meager income we have."
so, basically the company line was just a big pile of bullshit. they weren't retention payments - they were golden handshakes, & they weren't given to the people who may have deserved bonuses in their other insurance divisions - they were given to the people that turned AIG into the spiraling black hole it is today.
now the question is, if they're lying about this, what else are they lying about?
"While the Senate was constructing the $787 billion stimulus last month, Dodd added an executive-compensation restriction to the bill. That amendment provides an "exception for contractually obligated bonuses agreed on before Feb. 11, 2009" -- which exempts the very AIG bonuses Dodd and others are now seeking to tax."
Until Cuomo starts an investigation of Dodd, he is just grandstanding. Dodd got 100k from AIG last year and so did Obama, should they give it back?
I'll take half what they got for not working at AIG. Just like I'll take half of the MLB's minimum salary for sitting the bench.