3.18.2009

AIG Bonuses and Retention Contracts -- A Proposed Solution

This morning on NPR's radio program, All Things Considered, host Steve Inskeep spoke with a law professor about the legal arguments in support of AIG's claim that they must honor the controversial 2008 retention bonuses. The key points raised were that
  1. they have a binding contract to pay the bonuses,
  2. retaining essential employees is crucial as they try to get out of the mess they are in,
  3. letting people go could send a negative message to the market and make it harder to bring in other good people, and
  4. one possible result is that losing key people can give customers a legal option to withdraw all of their funds, thus pulling the rug out from under AIG at the worst possible time.
It was even mentioned that the point of the retention bonuses is to keep the brainpower in the company.

The arguments on the other side -- in support of the government's contention that they should be able to keep AIG from paying bonuses -- essentially amounted to the fact that it's caused a political firestorm and looks really bad.

So AIG and the government are at loggerheads. The government feels that it can't allow the bonuses to go through because the "taxpayers are hoppin' mad," but AIG has to keep its key people, even if it could get out of its contract to pay them. What are they to do?

It struck me as I listened to the interview that there is a very easy solution: Force the AIG employees to stay in their jobs! Compel the best minds, under the threat of imprisonment, to stay at AIG and keep working. It's perfect! The bonuses can be "recouped", the politicians can save face, and AIG can keep its key people.

The first iteration of this new rule -- let's call it Directive 10-289 -- will have just two points, and should do a great job of keeping AIG in place and the politicians happy:
Point One. All workers, wage earners and employees of any kind whatsoever shall henceforth be attached to their jobs and shall not leave nor be dismissed nor change employment, under penalty of a term in jail. The penalty shall be determined by the Unification Board, such Board to be appointed by the Bureau of Economic Planning and National Resources. All persons reaching the age of twenty-one shall report to the Unification Board, which shall assign them to where, in its opinion, their services will best serve the interests of the nation.

Point Two. All industrial, commercial, manufacturing and business establishments of any nature whatsoever shall henceforth remain in operation, and the owners of such establishments shall not quit nor leave nor retire, nor close, sell or transfer their business, under pentalty of the nationalization of their establishment and of any and all of their property.

I wouldn't presume to tell people like Barney Frank what they should do, as I'm sure he has already thought of this measure and has his people working on a draft bill, but I thought I'd raise this option all the same.

3 comments:

Roger said...

You wouldn't presume to tell Barney Frank what to do, but he'd sure as hell presume to tell you what to do, every chance he got.

Rational Jenn said...

Mr. August, you keep talking like that you just might have a career in politics ahead of you!

(You know I wouldn't really wish that on you.)

C. August said...

Thanks, Jenn, but I'm afraid I wouldn't be very good at it. I simply couldn't match the rhetorical skills of our elected officials right now (from Bloomberg):

“Something is seriously out of whack, and AIG needs to fix it now,” Representative Paul Kanjorski, a Pennsylvania Democrat who heads the subcommittee, said in his opening remarks.

Kanjorski called on Liddy “to accept responsibility, not to provide excuses.”

“I do believe it is time for us to assert our ownership rights under this arrangement,” House Financial Services Committee Chairman Barney Frank said at the hearing, referring to the government’s stake in AIG.

Frank said the government, as owner of the company, should bring lawsuits against “people who in fact did damage to the company.” He said he will call on Liddy to release the names of the bonus recipients.