When is a bonus not a bonus?

AIG is in trouble. Financial trouble, sure, but I’m talking about the naughty-corner type of trouble.

Being a giant company deeply enmeshed in the financial system, AIG has been receiving money from the US government in order to prop it up. The merits of those actions are debatable, but I’ll leave it aside today. What has hit the news is the fact that AIG, after receiving about $180 billion in taxpayer funds to prevent implosion, is now paying bonuses of $165 million to its executives. Obama is incensed, and he’s not the only one.

On the face of it, AIG’s actions look reprehensible and idiotic. But are they?

In AIG’s defence (and other companies in similar situations), the ‘bonuses’ aren’t what you’d think. It would be reasonable to assume that they are paid to an executive for good performance above and beyond satisfactorily carrying out their normal duties. Since AIG would have collapsed without support, it’s obvious they didn’t even reach par, let alone deserve extra remuneration. However, the payments are not going to anyone in the division directly responsible for the toxic financial products. Furthermore, what has been termed ‘bonuses’ are in fact retention payments for 168 people who were considered essential to keep around if AIG was ever to get back on its feet and pay back the government.

Whether such a strategy is a good idea or not, it does strike me as at least legitimate, and not really the dastardly thieving it has been portrayed as by critics.

I’ll also note, for the sake of perspective, that the money being offered to executives is roughly one 1,000th of the money received from the government. 0.001%! 0.1% Then again, that says more of the scale of the bailout than anything else.

UPDATE: As gently pointed out by commenter Loofa, I had the wrong percentage. Maths is not my strong point. This does not bode well for my degree!

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One Response to When is a bonus not a bonus?

  1. Loofa says:

    A small point, Jarra – 1/1,000 is 0.1%. 0.001% would be 1/100,000. Important to keep one’s sense of scale intact :)

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