Update: Despite the fanfare around the Obama administration’s recent announcement that it will require bailed-out firms Citigroup, General Motors, Bank of America, Chrysler, AIG, GMAC and Chrysler Financial to cut executive compensation dramatically among certain employees, as reported in the New York Times, these pay restrictions don’t address AIG’s failure to pay back its bonuses, as Greg Kaufmann outlines below, or its plan to spend $198 million on bonuses this year.
It was bad enough this past March when–after taxpayers had doled out a mere $180 billion to save AIG and took an 80 percent stake in the company–Americans watched in utter disbelief as the very division responsible for the insurance giant’s collapse received $168 million in so-called retention bonuses.
Now Nightmare on Wall Street continues–coming March 2010 to a theater near you, as AIG plans on upping the bonuses for its Financial Products division to $198 million, bringing the total to $426 million since December 2008.
This was just one of the mind-boggling chapters of the AIG misadventure on display during last week’s House Committee on Oversight and Government Reform hearing with Neil Barofsky, special inspector general of the Troubled Asset Relief Program.
Chairman Edolphus Towns, who has emerged as a leader in trying to uncover what really happened during the financial meltdown, noted that in response to the public outcry over the last round of bonuses, AIG at the time agreed to repay $45 million to the government.
“How much of that really was collected?” asked the chairman.
“As of the conclusion of our audit’s fieldwork in August, $19 million had been collected,” said Barofksy.
If you are hoping for a reason with some semblance of legitimacy, guess again. In fact, AIG just wants to see whether it will get the nearly $200 million this coming year before it makes good on its pledge.
“They want to see what they’re going to be getting after [pay czar Kenneth] Feinberg conducts his review of the $198 million [scheduled for] next March, before they commit, or fulfill their commitment, to pay back the bonuses,” said Barofsky.
Despite the fact that the American people now own 80 percent of AIG, Feinberg can only make a “recommendation” regarding the upcoming bonuses, since these contracts were signed before February 11 and therefore are exempt from any restrictions under the American Recovery and Reinvestment Act (ARRA). It really doesn’t matter one iota whether these bonuses are in the best interest of the public.
“Who could have had the power to insert that provision?” asked Ohio Congresswoman Marcy Kaptur. “It wasn’t in the House bill. How did that get in there?”
“My understanding is that Senator Dodd introduced the amendment,” said Barofsky. “The net effect…is that the TARP does not prohibit these types of bonus payments if the bonus plan was offered prior to that date.”
Maybe it was a fiscally sound move for Dodd, the Senate Committee on Banking, Housing and Urban Affairs chairman who was perhaps looking to replenish his war chest before a tough re-election bid. But it wasn’t so great for the rest of us.