AIG Bonuses: It’s The Forest, Not The Trees
By Laura Wilson
What a kerfuffle over whether the contracts to pay millions in bonuses to AIG’s (AIG) bet-the-house gamblers can be set aside, or do We The People / Owners have to bonus inept management? We’ve seen lots of parsing of the Constitutional commitment to support contracts between consenting parties.
We’ve also batted about the Sanctity of Contracts and its fundamental position in our society.
I support and defend the Constitution.
I understand that we want to be able to rely, with some degree of confidence, on legitimately-created contracts.
I have been asked to explain exactly why I believe that there are several ways to attack the payment of those bonuses, and why the honchos at massively-failed AIG do not get to keep bonus money.
It’s because, at least for the executives and managers, they failed to do the most basic function of the jobs for which they were contracted: They failed to keep the train on the rails. They failed to keep the poison peanuts out of the food chain.
It is my bet, based on years of bare knuckle, real-world experience in writing, negotiating, unpacking, fighting over, and fixing soured multi-million dollar deals, that there is a fatal flaw in those contracts, in the performance of those contracts, or both.
And if you care enough to look for it, you can find that fatal flaw, and use it as a linchpin to set aside, in orderly fashion, those contracts that call for payment of bonuses.
I agree that it is important to tie the set-aside of legally-binding deals to some orderly process, some accepted methodology.
We counter Chaos by Not Chaos.
That orderly process may be bankruptcy or other structured wind down of the company. It may be showing that the contractual obligations were not adequately performed, or that fraud or misrepresentation was involved in performing those jobs. (There are other recognized set-asides and clawbacks, as well.)
There is something rotten at AIG, and calling out those multiple flaws in the way the directors, officers, and managers ran the company can be used to negate those bonus payments.
The fatal flaw(s) may be in the contract language and in the bonus plan, which, one would hope, set up some criteria for paying millions in shareholder money above and beyond base salary.
We may find that the bonus contracts were so loosely written on a napkin that we have to dig deeper. If the bonus contracts are loosely written, it’s going to be on the company side. You can bet that the top-paid directors, officers, and managers of the company went trotting off to their executive compensation attorneys to lock up their side of the bargain. Also take a look at whether the company paid the legal fees for those exec comp advisors.
If the deal paper is worthless, look to the performance of the contractual obligations.
We are going to find so much fraud, misrepresentation and flat-out lying to shareholders and regulators, and flagrant bypassing of controls, that there is no way that these managers can claim that they were doing their jobs adequately.
They’ve already gotten paid for showing up for work, or phoning it in - that’s the base salary, and, frankly, even that is more than some of them deserve.
If we’re paying public money on bonuses, it should go to the Sully Sullenbergers of the world, not to the clowns who crashed the global economic plane into the ground by betting for years on trumped-up risk abatement models and phony paper that they did not understand, but rep’ed, warranted, and sold to everybody else.
In looking at how to unwind these bonuses, think back to first-year law school (shudder): it’s the forest, not the trees.
Laura is a business consultant and an advocate for information security, consumer protection, long-term shareholder value, and better management decisions. Her specialty is finding and fixing risks and threats to sensitive data. Her experience includes international banking, PCI, mortgage companies, venture capital portfolio companies, and software and technology providers. She practiced law in Silicon Valley during the tech boom and meltdown, handling corporate governance and information protection.
The Author gives permission to link, post, distribute, or reference this article for any lawful purpose, provided attribution is made to the author and to Information-Security-Resources.com
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Filed under: Class Action Lawsuit, D&O Liability, FEATURE ARTICLE, Financial, Government, Sarbanes-Oxley, Uncategorized
Comments
3 Comments on AIG Bonuses: It’s The Forest, Not The Trees
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Tran Harry on
Thu, 19th Mar 2009 7:08 pm
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Economic News March 23, 2009 » Harry Tran’s Daily 101 » Blog Archive on
Sun, 22nd Mar 2009 4:09 pm
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Lance Naismith on
Thu, 9th Apr 2009 12:35 pm
I wish that there was some way to give bonuses to those such as the pilot who safely landed that plane into the Boston river without giving away any incentives for pilots to start creating fake dangerous scenarios to receive a bonus.
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I think it is just a result of the “ME” generation, spawned into power circles through the old Behavioural Event interviews where those with the longest arm that can pat their back will get ahead. We’re seeing now that that type of promotion only gets those ahead that can talk the talk but can’t walk the walk. Or, the old term of bullshit baffles brains - corporations have just institutionalized it into their promotional practices. Shame that there is that “entitlement” feeling amongst our executives instead of “earning” what they are given.
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