I guess everyone is aware of the employee retention bonuses awarded by AIG to its executives last Sunday. In the light of the federal stimulus money supporting the company, this comes as a great shocker for many. What was to be an intra-company affair became a national headline for 3 consecutive days beyond that. How did the bonus story became such a rage that lawmakers are considering various options to "get back" the bailout money. Opinion polls show people across the country are aghast at the greed of the company executives and want the money back.
Fast forward Sunday, March 15: AIG announced executive bonuses, without realizing the ramifications of that action. By Monday morning, the blogosphere and later the mainstream media was full of stories and commentaries about how this action was unethical, even illegal to pay employees who created the financial mess in the first place. Senators and White House officials were asked for their reactions, and everyone's response was: it is shameful, and shouldn't have been done. Some officials even went to the defense, suggesting that it was difficult to stop them from issuing bonuses, since they were part of the company contract to the exmployees. Meanwhile, Eliot Spitzer's successor at the office of New York Attorney General, Andrew Cuomo issued a notice to the company to reveal the names of the executives who were being paid the bonuses. Over the day, lawmakers started deliberations to introduce a new piece of legislation to tax the bonus at ridiculously high rates (one proposal was to tax them at 100%). IRS already taxes bonuses above 1 million at 35%.
Let's step back a moment and look at the story once again. Congress approved bailout money to support the dying-AIG, presumably because that was one way to prop up other large corporations like Goldman Sachs, JPMorgan Chase, Meryll Lynch, Bank of America, etc. Now, I don't claim this - this theory is from former New York Attorney General and Governor Eliot Spitzer, who spent much of his lifetime pursuing white-collar crimes, before he resigned as Governor following the prostitution scandal. There was an attempt from Sen. Ron Wyden (D-Oregon) and Sen. Olympia Snowe (R-Maine) to include a provision in the bailout to cap the executive bonuses a $100,000, but it apparently died in the negotiations. As a result, there were no legal provisions in the bailout agreement to either restrict or cap the executive bonuses.
Fast forward Sunday, March 15: AIG announced executive bonuses, without realizing the ramifications of that action. By Monday morning, the blogosphere and later the mainstream media was full of stories and commentaries about how this action was unethical, even illegal to pay employees who created the financial mess in the first place. Senators and White House officials were asked for their reactions, and everyone's response was: it is shameful, and shouldn't have been done. Some officials even went to the defense, suggesting that it was difficult to stop them from issuing bonuses, since they were part of the company contract to the exmployees. Meanwhile, Eliot Spitzer's successor at the office of New York Attorney General, Andrew Cuomo issued a notice to the company to reveal the names of the executives who were being paid the bonuses. Over the day, lawmakers started deliberations to introduce a new piece of legislation to tax the bonus at ridiculously high rates (one proposal was to tax them at 100%). IRS already taxes bonuses above 1 million at 35%.
Now there are some key questions arising out of this situation:
1. Should the company have issued the bonuses: No, considering the fact that the U.S. government holds 80% stake in the company. So, in effect, it is the taxpayers' money that is going to fund a few executives who created the mess in the first place.
2. Is there a way to get back the bonuses: Maybe, but taxing them is not a great idea.
3. Why shouldn't the bonuses be taxed: Though such a measure would find popular support, I believe it would be unconstitutional to introduce a legislation that would tax the bonuses issued prior to the enactment of the legislation. Whatever happened to being "grandfathered"?
4. Should the executives return the bonuses: That might be the only option left. It is morally incorrect to take home bonuses at the expense of taxpayers, when millions are losing their jobs, much less taking home bonuses. As someone said yesterday, 'morality cannot be legislated'.
5. Did the White House screw up on this issue: Totally. I believe the bailout was mishandled by Treasury Secretary Tim Geithner and the White House administration. They hoped that AIG would use the money properly, without inserting any enforceable clause in the agreement. They gave easy access to fire in the hands of a pyromaniac asked to watch over a building. How did they think AIG got to this position in the first place?
6. Should we make a big deal out of this? Hmmm... may be, may be not. $165 million is roughly 0.1% of the $150 billion in bailout money AIG received. So it doesn't make sense to go after the bonuses, when there are bigger fishes to fry. But the issue is not about substance, but attitude. The whole episode just shows gross disrespect towards the feelings of millions of people who have lost their jobs and/or homes. To put things in perpective, Ohio's share of the federal stimulus money is nearly $8.2 billion. The AIG bonuses are roughly 2% of Ohio's stimulus share. That might not look like a lot of money, but it can help complete most of the projects listed in this Dispatch article.
1. Should the company have issued the bonuses: No, considering the fact that the U.S. government holds 80% stake in the company. So, in effect, it is the taxpayers' money that is going to fund a few executives who created the mess in the first place.
2. Is there a way to get back the bonuses: Maybe, but taxing them is not a great idea.
3. Why shouldn't the bonuses be taxed: Though such a measure would find popular support, I believe it would be unconstitutional to introduce a legislation that would tax the bonuses issued prior to the enactment of the legislation. Whatever happened to being "grandfathered"?
4. Should the executives return the bonuses: That might be the only option left. It is morally incorrect to take home bonuses at the expense of taxpayers, when millions are losing their jobs, much less taking home bonuses. As someone said yesterday, 'morality cannot be legislated'.
5. Did the White House screw up on this issue: Totally. I believe the bailout was mishandled by Treasury Secretary Tim Geithner and the White House administration. They hoped that AIG would use the money properly, without inserting any enforceable clause in the agreement. They gave easy access to fire in the hands of a pyromaniac asked to watch over a building. How did they think AIG got to this position in the first place?
6. Should we make a big deal out of this? Hmmm... may be, may be not. $165 million is roughly 0.1% of the $150 billion in bailout money AIG received. So it doesn't make sense to go after the bonuses, when there are bigger fishes to fry. But the issue is not about substance, but attitude. The whole episode just shows gross disrespect towards the feelings of millions of people who have lost their jobs and/or homes. To put things in perpective, Ohio's share of the federal stimulus money is nearly $8.2 billion. The AIG bonuses are roughly 2% of Ohio's stimulus share. That might not look like a lot of money, but it can help complete most of the projects listed in this Dispatch article.
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