Dear A.I.G., I Quit!

[Dion]

The following is a letter sent on Tuesday by Jake DeSantis, an executive vice president of the American International Group’s financial products unit, to Edward M. Liddy, the chief executive of A.I.G.

DEAR Mr. Liddy,

It is with deep regret that I submit my notice of resignation from A.I.G. Financial Products. I hope you take the time to read this entire letter. Before describing the details of my decision, I want to offer some context:

I am proud of everything I have done for the commodity and equity divisions of A.I.G.-F.P. I was in no way involved in — or responsible for — the credit default swap transactions that have hamstrung A.I.G. Nor were more than a handful of the 400 current employees of A.I.G.-F.P. Most of those responsible have left the company and have conspicuously escaped the public outrage.

I take this action after 11 years of dedicated, honorable service to A.I.G. I can no longer effectively perform my duties in this dysfunctional environment, nor am I being paid to do so. Like you, I was asked to work for an annual salary of $1, and I agreed out of a sense of duty to the company and to the public officials who have come to its aid. Having now been let down by both, I can no longer justify spending 10, 12, 14 hours a day away from my family for the benefit of those who have let me down.

As most of us have done nothing wrong, guilt is not a motivation to surrender our earnings. We have worked 12 long months under these contracts and now deserve to be paid as promised. None of us should be cheated of our payments any more than a plumber should be cheated after he has fixed the pipes but a careless electrician causes a fire that burns down the house.

That is why I have decided to donate 100 percent of the effective after-tax proceeds of my retention payment directly to organizations that are helping people who are suffering from the global downturn. This is not a tax-deduction gimmick; I simply believe that I at least deserve to dictate how my earnings are spent, and do not want to see them disappear back into the obscurity of A.I.G.’s or the federal government’s budget. Our earnings have caused such a distraction for so many from the more pressing issues our country faces, and I would like to see my share of it benefit those truly in need.

On March 16 I received a payment from A.I.G. amounting to $742,006.40, after taxes. In light of the uncertainty over the ultimate taxation and legal status of this payment, the actual amount I donate may be less — in fact, it may end up being far less if the recent House bill raising the tax on the retention payments to 90 percent stands. Once all the money is donated, you will immediately receive a list of all recipients.

http://www.nytimes.com/2009/03/25/op...ntis.html?_r=2

[HotHotHeat]

Not sure what to make of this. I certainly don't sympathize. Nor do I commend him for giving his bonus to charity.

[driveway]

Good on this guy. I was thinking about this last night, that it would be a really, really good PR thing for AIG executives to donate these contentious bonuses to charity.

[Daradon]

Whether this executive (and others) are truly responsible for the losses associated with the credit swap and mortgage futures products is only part of the argument against them though.

Really, how can a company justify such big bonuses (in any department) after getting bailed out as much as they have?

Perhaps financial executives should not receive such insane compensation in general?

[driveway]

Originally Posted by HotHotHeat

Nor do I commend him for giving his bonus to charity.

Why not?

[VladtheImpaler]

Originally Posted by Daradon

Whether this executive (and others) are truly responsible for the losses associated with the credit swap and mortgage futures products is only part of the argument against them though.

Really, how can a company justify such big bonuses (in any department) after getting bailed out as much as they have?

Perhaps financial executives should not receive such insane compensation in general?

Yeah, everybody should make the same - that worked so well for us in my homeland (USSR).
These guys should get whatever their contracts entitle them to, just like everyone else. If the Fed was idiotic enough to bail out AIG without imposing conditions re bonuses, then it's the Fed's fault, not the guy's who earned the bonus.

[Daradon]

Originally Posted by VladtheImpaler

Yeah, everybody should make the same - that worked so well for us in my homeland (USSR).

That's not what I was getting at. In fact I'm not even sure where that comment came from...

Originally Posted by VladtheImpaler

These guys should get whatever their contracts entitle them to, just like everyone else. If the Fed was idiotic enough to bail out AIG without imposing conditions re bonuses, then it's the Fed's fault, not the guy's who earned the bonus.

Have to disagree, lots of people are losing their jobs, losing their pay, in some cases losing their savings. Many of these people had contracts too. Contracts with the banks, contracts with their employers. They don't get bailed out.

Why is it that the little guy always pays and loses more (percentage wise anyway)? I agree, people should NOT be paid the same. But the rules SHOULD be the same to everyone.

[Locke]

Hes upset due to the bonus conditions. Fair enough, if it was my money I probably wouldnt be peachy keen on it either.

At the end of the day though, no, he shouldnt get what his contract stated he would, the reason being that the money isnt coming from the original source anymore. AIG isnt paying him with their corporate earnings, the Federal Government is paying him with taxpayer dollars.

AIG was bailed out to the point where they're effectively a wholly owned subsidiary of the Federal Government.

I see it as, if the Fed had upheld moral hazard in the marketplace and let AIG fail then buddy here who just collected a check for about 3/4 of a million dollars would have gotten sweet f*** all.

So what is he entitled to? Nothing. Is it his fault? Who cares? Hes complaining that its not his fault and it isnt fair? Look at the goddamn industry he works in!! Theres no insurance for massive spontaneous corporate failure, and even if there was the carrier wouldnt be able to afford to pay out.

[Bobblehead]

His annual salary is $1.

He had nothing to do with the CDS or CDO debacle.

And he has been branded a criminal by the general public.

There's an incentive for hard work if I've ever seen one.

If your argument is that he doesn't deserve this bonus because they received bailout funds, then I ask how much people in his equivalent position are receiving? Why should he work for less than them?

Now someone who knows how to do the job, who had nothing to do with the root issue has left.

Who in their right mind will take this job, AIG is going to be targeted for years?

AIG might as well start selling off what assets they have.

[MarchHare]

Yeah, everybody should make the same - that worked so well for us in my homeland (USSR).

Nobody is saying everybody should earn the same amount. If money is so important to this guy, then he shouldn't have been dumb enough to agree to a base salary of $1. In any company I've ever worked for, bonuses are always determined (at least in part) by company performance, which in AIG's case was obviously very poor. A bonus is not his salary, nor is a bonus a sales commission.

[Bobblehead]

Originally Posted by MarchHare

Nobody is saying everybody should earn the same amount. If money is so important to this guy, then he shouldn't have been dumb enough to agree to a base salary of $1. In any company I've ever worked for, bonuses are always determined (at least in part) by company performance, which in AIG's case was obviously very poor. A bonus is not his salary, nor is a bonus a sales commission.

It is a retention bonus, not a performance bonus.

[VladtheImpaler]

Originally Posted by Daradon

Have to disagree, lots of people are losing their jobs, losing their pay, in some cases losing their savings. Many of these people had contracts too. Contracts with the banks, contracts with their employers. They don't get bailed out.

Why is it that the little guy always pays and loses more (percentage wise anyway)? I agree, people should NOT be paid the same. But the rules SHOULD be the same to everyone.

I guess the "little people" should have gone to school, been more successful and not run up their credit cards to $45,000. In fact it's the little people who DO get bailed out - foreclosure protection (why should responsible people pay for idiots/speculators?), job-protection schemes, "Buy American", etc. Just because this guys is successful doesn't mean he shouldn't get what he is entitled to.

[MarchHare]

Originally Posted by Bobblehead

It is a retention bonus, not a performance bonus.

So AIG was paying this guy $750K after taxes (so that's what, like $1.5M pre-tax?) regardless of his and the company's performance just because he didn't quit?

[HotHotHeat]

Originally Posted by driveway

Why not?

Because they're retention bonuses! Retention! Non performance based bonuses should not be given out. Ever.

[Titan]

Originally Posted by Bobblehead

It is a retention bonus, not a performance bonus.

He was asked to stay on to help fix the mess. He was told 3 times he would be paid in March. He was asked to take a salary of $1, which he did based on the contractual agreement of a retention payment to be made in March. The government paid the bailout money with no consideration for existing contracts or bonuses and with no plan or conditions to deal with them. He was not responsible for the losses. He made the company 100s of millions of dollars.

Yeah, string him up. Doesn't matter whether he was reponsible or not as long as the mob is satisfied.Contracts be damned.

Think about your own work situation and how happy you would be if your contracts were not honored. How about your house purchase, or your car purchase.

Contracts are there for a reason. The primary role of a government in a liberal democracy is to ensure that contracts can be made with the certainty they will be honored. But he is rich right? So fata him!!

[VladtheImpaler]

Originally Posted by Locke

Hes upset due to the bonus conditions. Fair enough, if it was my money I probably wouldnt be peachy keen on it either.

At the end of the day though, no, he shouldnt get what his contract stated he would, the reason being that the money isnt coming from the original source anymore. AIG isnt paying him with their corporate earnings, the Federal Government is paying him with taxpayer dollars.

AIG was bailed out to the point where they're effectively a wholly owned subsidiary of the Federal Government.

I see it as, if the Fed had upheld moral hazard in the marketplace and let AIG fail then buddy here who just collected a check for about 3/4 of a million dollars would have gotten sweet f*** all.

So what is he entitled to? Nothing. Is it his fault? Who cares? Hes complaining that its not his fault and it isnt fair? Look at the goddamn industry he works in!! Theres no insurance for massive spontaneous corporate failure, and even if there was the carrier wouldnt be able to afford to pay out.

Dead wrong. Why should the guy work for $1? I'm sure he would have been happier to quit. Again, the Fed had the option to impose conditions when it bailed AIG out; the Fed neglected to, so AIG is simply abiding by its contractual obligations.

[Daradon]

Originally Posted by VladtheImpaler

I guess the "little people" should have gone to school, been more successful and not run up their credit cards to $45,000. In fact it's the little people who DO get bailed out - foreclosure protection (why should responsible people pay for idiots/speculators?), job-protection schemes, "Buy American", etc. Just because this guys is successful doesn't mean he shouldn't get what he is entitled to.

Yeah, cause every college grad gets a million dollar a year bonus...

Lots of the little people DID go to school. And many of them aren't in trouble cause of credit card debt. What about the people who lost their savings in failed banks?

What happened to this guy surely sucks, but at least he can probably pay his bills, keep his house etc.

All I'm saying is a company that is sucking up billions of dollars, from the very people who lost money in lots of these investments, should not be paying crazy bonuses.

I've had companies go under on me, miss payments to me. What makes this guy so special?

It's crappy yeah, but it's far better than what's happening to millions of others.

[VladtheImpaler]

Originally Posted by MarchHare

So AIG was paying this guy $750K after taxes (so that's what, like $1.5M pre-tax?) regardless of his and the company's performance just because he didn't quit?

Exactly. If you are good at what you do, perhaps one day you will get a contract like that. When the market was hot in Calgary law firms were payng $10-15K bonuses to stay until Nov. 1 of the year (or whatever date).

[Titan]

Originally Posted by HotHotHeat

Because they're retention bonuses! Retention! Non performance based bonuses should not be given out. Ever.

So at the first smell of things going wrong the top executives will all flee to better/safer jobs. They are the ones that are in demand and will be hired. Why should they stay? Oh yeah, for the retention bonus. You give something to get something. You want the best and brightest to stay and help right the ship in a bad economy, you pay for it. That is the definition of the american way. You have a skill you sell it to the highest bidder. That is the system. Now you tell the guy, by the way, we are not going to pay you now. Please stay and work for that $1? No thanks.

[Jedi Ninja]

I agree that AIG gets somewhat picked on in this situation... however, I think the AIG incident has drawn badly needed attention to the issue of executive and bonus compensation as a whole.

• Executive compensation has grown at astromical levels. The problem is that upper managers pretty much have control over the boards of directors and therefore set their own pay. Some shareholder rights groups have tried to draw attention to this situation, but the problem is the large number of absentee shareholders allows the system to continue.
• Behavioural research has shown that the link between bonuses and performance is, if anything, negative.
• Economic research has shown that executive compensation correlates to the size of the organization, but not to profit or other performance based measures.
• Close to 100% of traders and potfolio managers receive some sort of bonus even though fewer than 50% of them beat the market.