Wednesday, March 25, 2009

AIG Executive Shrugs

I've written many times that the majority of business executives are not the sort of person one would invite to dinner, more Taggart than Rearden. So it was with an indescribable pleasure, and much sadness, that I read this resignation letter from Jack Santis of AIG to the CEO, Edward Liddy. He states his reasons eloquently and in detail. He doesn't whine, but neither does he shy from claiming the righteousness of his position. Here is a small portion:
I think your initial decision to honor the contracts was both ethical and financially astute, but it seems to have been politically unwise. It’s now apparent that you either misunderstood the agreements that you had made — tacit or otherwise — with the Federal Reserve, the Treasury, various members of Congress and Attorney General Andrew Cuomo of New York, or were not strong enough to withstand the shifting political winds.

You’ve now asked the current employees of A.I.G.-F.P. to repay these earnings. As you can imagine, there has been a tremendous amount of serious thought and heated discussion about how we should respond to this breach of trust.

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.
The pleasure came from seeing that rare sight: an executive with a conscience, and a very healthy and proper one at that, full of the pride he has earned. The sadness, of course, comes from his grotesque betrayal -- by his CEO, the Congress, and worst of all, far too great a percentage of the American people.

Jack Santis, you are a true hero. And may the Taggarts of the world burn on Earth for failing to come to your defense when it mattered.

5 comments:

RickH86 said...

Except - why do you deserve a bonus for doing your job? I realize that AIG agreed to pay them the bonus for not quitting (wouldn't we all like that), and so they should be paid. But why does he feels he earned / deserves a bonus for doing the job he was paid to do for the past year? I'd say getting paid is much better than being let go.

Jeff Perren said...

Rick,

There are a number of points to make in reply to your questions and comments.

First, it isn't up to me, you, nor especially the Feds to decide if, when, or how much Mr. Santis or any other private citizen should be paid. Probably we agree on that.

But to answer your specific questions...

Perhaps you didn't read the entire letter, but only my excerpt. Mr. Santis was at little risk of losing his job and very likely could have found a better one easily. He agreed to work for $1 per annum, but was contractually promised a retention bonus if he agreed to stay. His past history showed that he was well worth it.

Mr. Santis states (and we have no reason at this stage to doubt him) that his division was consistently profitable for years, to the tune of $100 million in additional revenue. I'd say that kind of performance merits a bonus, an amount which (I remind you) we don't know.

Your question seems to go beyond Mr. Santis' situation, though, to ask why anyone should receive a bonus ever for "doing the job he was paid to do"?

Bonuses, in Wall Street firms and elsewhere, are a time-honored method of compensation. They are part of many employees' whole compensation package, particularly in finance-related companies. Are you suggesting no company should offer these? Or are you suggesting that they should be reserved only for doing 'more than one's job' (whatever that might mean in the case of an Executive VP)? Perhaps it is only the idea of a retention bonus to which you object...?

Returning to this case, I doubt you would advocate that Mr. Santis, or anyone else, work for free simply because the character of the CEO of AIG was too weak to stand up to political pressure or because creatures like Barney Frank believe Santis' work is worthless or worse. Do you think Mr. Santis should have sacrificed himself and agreed to continue working when his boss wouldn't even defend him and his staff against scurrilous and baseless charges by moral midgets?

-bjp said...

great reply Jeff!

This AIG bonus nonsense is merely the Obama administration dangling a bright shiny object under the noses of the masses to deflect attention away from the many outrages they are committing.

Additionally, as you focused on the morally correct free market principles in your argument, i.e. it ain't none of our or the governments business what privately held companies chose to do by way of total employee compensation, there are several other points that you and Mr. Santis didn't address.

First, the bonuses were a contractual obligation of AIG. We are a country of laws and contract laws are not to be triffled with. The mere suggestion that AIG should have ignored what they were legally obligated to do is repugnant on the face of it.
Second, the bonuses were fully disclosed to the Treasury department and the Obama administration some months ago. For them to act like they just learned about it is the worse kind of politics there are.
Third, the stimulus package included language, apparently at the request of the White House, that guatanteed any bonuses that the bailout companies signed on to prior to February 1st, 2009, HAD TO BE PAID! This one makes me more mad than all the rest.
Finally, why in Gods name are we all focused on less than one half of one percent of all of the tax payer money that went to AIG when they have been pissing billions out the window.

Smoke and mirrors, smoke and mirrors.

Brad

Jeff Perren said...

Brad,

Your points are all well put and unassailable. The whole business is an utterly shabby affair from one end to the next, which is one of the reasons I've said very little about it and didn't point out all you did. So, thanks for filling in the blanks.

The fundamental problem, of course, is that the Feds are involved in 'rescuing companies' and 'fixing the economy' in the first place. That fact generates these muddy issues, where people are justly outraged and feel that since tax money is involved the Feds should manage the situation.

If not for that, no doubt good people like Rick would not be as angered by what both the executives and the politicians are doing.

But you're absolutely right; it's all just a giant head fake while the Progressives in authority continue on their merry way to transform what little free market we have left into a completely corporativist (i.e. Fascist) system and if the general public doesn't get wise soon, and outraged enough to do something about that more basic danger, we'll all find ourselves in Italy circa 1935.

RickH86 said...

Jeff,
Sorry, but yes, I just read the excerpt. I'll read the link next time.
I do believe in the bonus system, but in my personal experience, the first requirement for bonuses to be paid was that the company be profitable, not just my projects, division, etc.
Of course, there is a strong argument that bonuses should be paid regardless, as the people generating revenue should be rewarded, regardless of how other portions of the company did.

If Mr. Santis agreed to work for $1, with the bonus at the end of that time, then I don't even understand the outrage that he's getting a bonus!