AIG Bonuses – Right & Wrong

March 18, 2009 · Filed Under Economics · Comment 

Last night I was having a conversation with some colleagues about the economic situation and the issue of the AIG bonus payments came up. Of the 4 of us present, the other three all felt that the bonus payments should not have happened. Yes you guessed it, I don’t agree.

So let me explain. From what I understand these payments are made to approximately 200 people under contractual arrangements entered into when these people joined AIG. Also these bonus payments are only payable based upon certain criteria being met. Therefore with this as the basis I firmly believe that all economies are founded on the basis that contracts are enforceable and somebody can not get out the contract at a later date if they want to change the goal posts. Thus the payments must be met to honor the obligations. If you say that since everything has changed and therefore the bonus payments should not be payable then where do you stop. Who has the discretion to honor which legal contracts? Remember these people getting the bonuses are not as I understand it the board or the CEO. The people getting it are the revenue generators for AIG.

I believe that the payment is to be made, so why has it become a big issue. It is obvious if you are a politician it is easy to be antibusiness and whip this into a fever pitch issue. I am concerned about the antibusiness sentiment that is coming out of the government in the US.

Now one of my colleagues stated that whilst the legal contracts may be correct but morally these people should not get the payments. I believe that morally the leadership of AIG has to honor its commitments to the team – so it cuts both ways.

Let’s look at these items in the cold hard light of day and remove the political vested interests from the argument.

There is a salient issue here in that businesses need to measure what matters i.e. what matters to the customers and make these measures the ones which rewards and bonuses are paid. If this was case then the bonuses would possibly not be payable.

I would love to hear your comments on this.

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