The bonuses are "only" some hundereds of million of dollars. The bank bail-out is growing to over a trillion. I am more angry that Goldman Sachs received billions of dollars from its contract with AIG when AIG was factually bankcrupt and only survived on government support. As you wrote, some people in AIG original insurance business might have done excellent work in 2008 and deserve some bonus - an argument more to break up AIG into good units and the rotten rest. The good units could pay their bonuses without public interference.

Peter T. -- Being in a "kind of" bankruptcy is not the same thing as being in bankruptcy as far as the law is concerned. It is either in bankruptcy or it is not. AIG is not even in receivership -- it is therefore subject to no government oversight.

Punative taxation is unconstitutional. That's a well-settled area of law.

If instead of crafting this reactionary bailout the government would have grown a pair and attached some rules and regulations to those billions of dollars they were throwing over the side of the inaugural floats at these failing businesses, we wouldn't be in a tizzy about these bonuses right now -- they would not have been paid.

We cannot now pile more bad law on top of the bailout.

Well, I suppose anything is possible right now, huh?

I'll just say that this is yet another unwise move.

There is no chance in hell I'm returning the bonus if I'm in their shoes. I'm keeping it, staashing it away. If Congress wants to come after me, they can have it back, but otherwise it's my money. And I'm gonna spend it on a pony!

-Nate

Kind of like loaning some money to a friend, then getting mad about how they spend it. Or more like, your broke sibling complaining about how they spent it.

We gave (or allowed to be given) money to AIG. They will do what they do.

Lets move on, there are other big fish to fry.

The attempt to tax it back is called a "Bill of Attainder."

We fought a revolution, started a country, and wrote a Constitution over that among other issues. Within that document we find:

Article I, Section 9, paragraph 3 provides that: "No Bill of Attainder or ex post facto Law will be passed."

Strange that congress cannot find the same provision.

It's always dangerous to encourage the government to change the rules after the fact--it's the sort of thing that comes back to bite you later.

What this indicates, though, is that we need a better set of rules:

1. We need better rules for winding up very large financial institutions that have gone bust.  Currently the rules are such that putting them into bankruptcy threatens the whole financial system, as we saw with Lehman Brothers.  This prompts the government to do something that's sort of but not exactly bankruptcy, producing this sort of ambiguous situation.
2. We need better rules for dealing with bonuses paid out on the basis of financial results that turn out to be wrong or misleading.  (That is, the bonuses that we ought to be going after are not so much the ones being paid this year; we ought to be clawing back the bonuses paid in 2005, 2006, and 2007 when AIG and other large financial firms were being run into the ground by greedy idiots who got paid huge sums for taking gigantic bets that didn't blow up until after the bonus check cleared.  If we had rules like that, the people running the company would have very different incentives when it came to betting the company.)

Having said all that, I'm kind of okay with the government changing the rules and taxing bonuses paid by firms that have been bailed out.  It'll bring in a bit of extra revenue, it produces a reasonable result (people who work for firms that would be bust if it weren't for government bailouts don't get big bonuses), and it teaches people to be careful about trusting the government when large amounts of money are involved--always a good lesson.

AIG was upfront about the bonus structure before the bailout money was given them, and they are not bonus payments in the traditional sense of the word. They are indeed more like salary payments. Sure, the people getting these payments earn way more than most of us, but that's a dangerous game to play. If you earn twice what your neighbor does, does that mean you should have some of your salary taken away? Salary that you were counting on. This is a smokescreen, pure and simple. We're all getting fired up over this and the nation is trillions of dollars in debt. Why get so worked up over a tiny drop in the ocean?

And if we let them go bankrupt, do they get their bonuses? I guess I'm not with you here. It seems like the same kind of creative accounting that got us into this mess to start with. Not just with AIG, but with any company that can show losses yet have ceo's or others get bonuses. Maybe too big to fail is just too damn big to start with, and part of too big is being able to float all this b.s. because it's just "too complicated".

What a silly argument. For all intents and purposes, AIG went bankrupt last summer. Had the government not intervened, all those "good employees," would have received no bonus... so why should they receive one now at the taxpayer's expense?
(The preceding was not a legal argument)
From a more legal standpoint, I believe the law will stand. Retroactive taxes have been Constitutionally upheld, and by wording the legislation to include any company that receives more than $5 billion in bailout money, it should apply to enough people that it is not considered a punitive tax. Harvard law professor Laurence Tribe says it should be considered Constitutional.

I love this post and kudos for writing it. My husband and I have been having the exact same disagreement.

I think it's funny how everyone thinks the receivers of these bonuses should give the money back. It's always easy to give away someone else's money isn't it? I think more people need to put themselves in the shoes of these employees, not the big CEOs, but the little worker bees at the bottom of the totem pole. I don't think many people in that same situation would honestly give away their hard earned money.

@One Frugal Girl

You seem to be confused about he bonus issue. Have you been paying ANY attention to this?

"I think more people need to put themselves in the shoes of these employees, not the big CEOs, but the little worker bees at the bottom of the totem pole."

Frugal G, the little worker bees aren't getting the million dollar bonus checks and the little worker bees aren't in danger of losing any "bonus" they might get.

I'd recommend a Google search perhaps, to read up on the facts. It's been covered in most every newspaper of record. http://www.google.com just in case you don't know how to do a Google search.

I'm sure that you and your hubby have been having a disagreement over this. He might actually be dealing with facts, while you are obviously confused. But then, he married you.

>It's simple: we're all angry when we see a company that's >getting bailed out paying out huge bonuses to the very people >we believe put them in that mess.

It is simple. People who made mistakes - consciously or not - should take responsibility i.e. get fired or "punished" in some other way e.g. should get their pay docked or whatever seems appropriate. That's the basic law of the free market economy - those who make mistakes fall behind those who do not. It's not the other way out...

>Should these people have their bonuses taken away when they >were contractually obligated to receive them?

No one may be obligated to receive benefits. You may be entitled to it but as far as I know you cannot be obligated to it. The company is obligated to pay, not the CEO's to receive them, or are they ?

>And if somehow they were taken away, why would these >(presumably great) employees stay at the company? Why wouldn't >they all take off, leaving AIG devoid of all the good talent >that's left?

If those good talents got the company in a difficult situation in the first place, should they be still considered worth keeping ?

>Part of AIG's business (insurance) is a great company and does >great work.

Well made point. The company should distinguish between effective and ineffective employees. If the ineffective group is being paid large bonuses it may be branded as an action detrimental to the company's health and as such is punishable under U.S. law, isn't it (I'm not an U.S. citizen, so I don't know for sure)?

>These bonuses were in their contract, so if you want to be >upset then direct it at the people who wrote the contract
>(AIG). The law says AIG has to pay them.

Yes, the people who drafted contracts that award certain people bonuses regardless of their financial results (while managing company) are to blame.

As there is not simple answer to your question I would say that the company owners should try to question the validity of the aforementioned contracts in court. If the court determines that the contracts are invalid or faulty in some respect the owners would gain a legal argument in the dispute and a legal basis for taking another legal action in order to take away the bonuses from people who didn't deserve them.

Another question is how the U.S. government secured it's aid. When providing money for a company to bail it out, it should state some conditions regarding inteded use of this money, right ?

All of these big banks are having the same issues, new executive office suites, new planes, big bonuses. No business that fails so horribly that the govt. has to come in and rescue them should be purchasing new assets or paying bonuses. AIG could and should have renegotiated those contracts just like the auto makers did theirs. Yes, AIG isn't the only one doing this. The others we bailed out have been doing the exact same thing but just didn't get the media attention. There is way too much nepotism between these big banks, the fed and Congress. A blanket policy stopping the excesses needs to be there, trying to go back and tax it was more stupidity.

You know what makes me mad about the bonus situation? I worked for a Fortune 500 company during a time when they made record breaking profits. It was $11 billion in one year, if I'm not mistaken, and I was part of the team of "foot soldiers" that helped them make those profits. The employment contract read that bonuses would be paid "as business conditions permit." What actually happened was that management got bonuses and the little guys like me got coffee table books. We have a really sick corporate culture in this country. I actually heard an AIG representative refer to the people receiving bonuses as "talent" and he insisted that the bonuses were necessary to "retain" the talent before they get hired away. (Presumably, there are other global insurance companies on other planets whose economies have not been destroyed that are eager for this kind of "talent.")

As long as we insist on believing that corporate execs are supermen and -women with extraordinary powers, they will continue to be paid obscene salaries. We all need to GET OUR HEADS back and let it be known that if a senior-senior-senior vice president is at the helm of the ship when it sinks, NO, he does not get a big bonus while he is riding the coast guard helicopter to shore. It is QED a proved fact that these people did NOT do "excellent" work last year because they contributed to a crash of the world economy. Each and every one of those "talented" execs could be replaced by at least ten other people who could do the job just as well and are currently working in banks and accounting firms for sane salaries.

To answer the question, hell yes I would give the bonus back, even if I felt i was not directly to blame for the company's problems. It is ridiculous and shameful to accept such a large bonus at a time when people are living in their cars because of my company's actions. And remember, these guys are rich already. It's not as if they are choosing to give up shoes for their children. They might have to sell that fourth vacation home, but they'll be okay. Should the government take that money back? Sure. If they can. AIG is basically owned by the government, now, so why not?

Catherine Shaffer

Wise Bread Contributor 

Legacy costs are a part of the Big Three's problems, it's true.

And they have legacy costs because, you know, they've had a very successful business here for many, many decades. All those foreign companies don't have legacy costs -- yet -- because they are relatively new to the US market.

But the legacy costs are a problem now only because the Big Three decided that instead of setting aside some the money they made decades ago when times were good to pay for future contractual obligations to their workers, they'd rather give big fat bonus checks to the executives and dividends to the shareholders.

In fact, major corporations like the Big Three spent many millions to buy legislation from congress that made it legal to steal from retirement accounts.

So boo-fucking-hoo for their complaints about legacy costs. They have legacy costs because they were very successful for most of the last century.

You also wrote: "If I was a top dog at AIG's insurance dept. I would take my bonus and definitely not give it back. I earned it."

For the record, there isn't a single executive at any major corporation in American that has "earned" the millions of dollars they make. Not saying they don't work hard, but just that they are vastly overvalued for their efforts. Their ratio of compensation to contribution is way out of whack.

Catherine (#27) is right. Corporate culture in the U.S. is totally f-ed up. It's a delusion of grandeur for a Chief Officer of a company to think he/she deserves compensation equivalent to $5,000-10,000 *per hour* -- even if times are *good*. That kind of income is made only on the backs of the hundreds or thousands of people who are doing real work in the organization.

Yet we tolerate companies which keep overpaying their officers while they lay off people who've spent 20-30 years at the company. We seek out to hire executives (*cough* Bob Nardelli *cough*) who ran their companies down and still left with millions. We believe it when we're told that this kind of pay is necessary because otherwise the organization won't be able to keep that kind of talent. Look around -- how many jobs are there which would pay $5,000 an hour? Especially to lose buckets of money and capital? Damn few, I'll bet. So where are these hot shots going to go? Strange how the officers at huge companies like Toyota and Sony and Nokia and Bosch, with headquarters outside the U.S., don't stand up on pedestals and proclaim that they won't work until they're paid what Vikram Pandit and Carly Fiorina have been paid.

And it's ironic that these same "heads-I-win-tails-I-win" clowns have convinced American workers that "pay for performance" is the only fair way to compensate people.

They're fools, but we're chumps for going along with this nonsense.