AIG Financial Products may finally be getting the hint that there’s some nuance and subtlelty to its payment of bonuses.
This time they’re showing a little bit of common sense and going to the compensation czar for advice.
After the debacle of following the simplistic, myopic advice of Paul Hastings’s Patrick Shea, the company is actually considering some of the externalities that made it look so bad when it paid out $165 million in stay bonuses to employees of the beleaguered division. We’ve written about the firm’s advice on this matter several times before (and the one lawyer whom we lauded for giving his bonus back). In addition to Shea, Weil Gotshal and Hogan & Hartson advised Treasury on its involvement in rubber stamping the payouts.
Yes, we know, many, if not most, of the employees of AIG FP had nothing to do with the losses, but we actually read entire articles and filings from time to time. That’s why we were baffled that Geithner and AIG didn’t recognize this for the landmine it clearly was right away.
So now that there’s only $250 million left to pay over the next nine months, AIG is asking Ken Feinberg if the payments should be made. In a last little pique of independence, though, they say they’re just doing it as a courtesy, because they think they’re not technically obligated to consult. Of course, it was that same hypertechnical approach that got them in trouble the first time around, so maybe they haven’t learned.
AIG officials have sought a determination from Feinberg, whom Obama appointed last month to oversee the compensation of top executives at the seven firms that have received the largest federal bailouts. The bonuses do not officially fall under his purview, however, because they were promised last year. Feinberg is charged with shaping only current and future compensation.
But company officials have put him in the hot seat nevertheless. If Feinberg blesses the coming bonuses, the move could ignite public anger once again. If he advises against the payments and AIG reneges on its pledge to employees, they could abandon the firm. Company executives have warned that a wholesale loss of expertise could endanger taxpayers’ investment in AIG, made under a rescue package now valued at $180 billion.
No aspect of the financial crisis has infuriated average Americans and lawmakers more than the AIG bonus issues. The company’s predicament began nearly a year and a half ago. In early 2008, before the government’s rescue of the giant insurer, employees at AIG Financial Products were promised more than $400 million in retention pay, with lump sums coming in March 2009 and March 2010.
Even after the company’s multiple bailouts, lawyers for the government and AIG agreed this year that many of those payments, however unsavory to the public, were legally binding. But with the issue angering millions of Americans, Obama vowed to “pursue every single legal avenue to block” the bonuses. Lawmakers backed a bill that would have taxed the payments to Financial Products employees at 90 percent. Then the uproar died down as quickly as it had begun. But behind the scenes, various pay issues remained unresolved at AIG. In the wake of the March controversy, officials at the Treasury and the Federal Reserve agreed with AIG that it was vital to keep employees at Financial Products, lest the firm’s remaining deals go bad and bring down the company, according to company and government sources.
Frankly, this seems more like they don’t know what to do and don’t trust their counsel any more. It would be fine for them to ask Feinberg for an opinion, but to do it in the same breath as they say he doesn’t really have any official authority is crazy. They’d be even stupider than they’ve been so far to ask for, then disagree with, his finding, so why leave that door open?
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