latest scapegoat: aig

Once again it seems folks have found a convenient target to blame in the latest round of the financial mess. This time it's AIG and its bonus recipients. And once again, the government is jumping in to impose its will (i.e. the will of the pitchfork mob that it's catering to nowadays). The plan: alter existing contracts and agreements by decreeing that AIG employees cannot receive bonuses, regardless of what pre-existing structures are guiding the distributions and despite having failed to insert a check against this sort of thing back when the taxpayer money was thrown to AIG in the first place. Typical politics at work, fellas. Washington wants to fix its own screw-up by screwing things up more.

Thankfully, there seem to be some lawmakers that haven't yet lost all sense, as not everyone is on board with the (latest) downright scary plan to ratchet up tax rates on a targeted group of individuals. Even some Democrats are coming out against such lunacy. Are you thinking what I'm thinking? If there are a lot of Dems opposing a tax hike, that alone speaks volumes.

Look at it this way. Suppose you're an AIG employee, maybe even an exec, who did your best all year long. Part of your overall compensation package includes bonuses depending on how your division, group, sales unit, or whatever in the company did. In fact, chances are that a significant part of your overall compensation is tied to this, such that your base salary is well below the norm and only "catches up" after bonuses are handed out--much the same as a waitress adds her tips to her wages at the end of the day. You performed your job well and your group met expectations. So according to company policy, not to mention the terms by which you have been employed for the past year, you're due a bonus for your efforts.

Now suppose that several idiots at the top didn't do such a great job and exposed your company to far too much risk, and inevitably that got your company in a lot of trouble as soon as the breakneck pace of the economy finally slowed down. Were you responsible for the problem? Probably not. Did you do your job well despite the failings of others? Yes. But, according to the government's logic, their failings should cost you part of your compensation, regardless of what the terms of your employment were before the government got involved. Dunno about you, but to me that sounds like one heck of a raw deal.

I'll throw in a personal example too. My former employer relied heavily on this method. Salaries for engineers were considerably below market value but (in theory anyway) were made up for by end-of-year bonuses* contingent on division performance and company earnings. And these bonuses were significant, usually double-digit percentages of one's salary. Needless to say, that's a lot of money just kinda "hanging out there" all year long; in the end it made salaries at least comparable for the position and region, and without them salaries would have been laughable relative to other employers and the brass would have had a tough time attracting new employees. (The bonus was a big sales pitch the company liked to use in recruiting.) Of that bonus, a large chunk was tied to goals and targets defined at the beginning of the year. Under such conditions, the company could do very poorly but the division and site could still do well and get a solid reward as a result.

So, again using the government's logic, if the fools calling the shots had made some bad moves and put the company in a bad way such that it received a bailout of some sort, we should have given up what was effectively a double-digit percentage of our salaries because it happened to come in the form of a one-time bonus instead of regular pay? No freakin' way. It shouldn't be hard to see how that would unfairly punish many who had no responsibility for the calamity and were simply working within the terms of the company's compensation structure.

Once again, as I alluded to a few posts ago, a big issue in play here is the government's willingness to arbitrarily rework the terms of existing contracts to suit its own whims and placate the masses who need someone to blame. This is an incredibly stupid method of governing in any situation, and most especially one for which a turnaround will require stability and consistency in the oversight of financial markets. (On a side note, for all the talk we hear of needing more and better regulation of the economy, I'm sure not seeing much of it. Taxpayer money is being thrown about haphazardly and laws are being changed to suit whatever happens to be the favored approach of the hour.) I don't see how the action of altering employment agreements without the consent of those involved contributes anything but more chaos to an already chaotic situation. If the powers that be wanted to do more short-term and long-term good, they'd leave that AIG bonus money alone and either put more stringent conditions on corporate welfare gimmies in the future, or, preferably, they'd just resign from the bailout game altogether.

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* In what can only be called an internal P.R. disaster, a few company execs actually went on record boasting about this great business practice in an industry trade journal. Needless to say, news of the admissions spread like wildfire at my workplace and served as an "aha!" that we were being paid low base salaries despite being told otherwise. Let's just say folks weren't exactly overjoyed at hearing it. The company retracted the quote as fast as they could and the link to the article disappeared from the intranet page, but the damage was already done. My point is, I know for a fact that compensation is done this way because I've seen it firsthand and I've seen higher-ups admit it and even proclaim its greatness.

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