Poor Judgement?

I had two immediate thoughts on the AIG bonus scandal:

  1. What on earth are these bonuses linked to? Obviously not the success of their ventures.
  2. Re: “cannot attract and retain the best and the brightest…” There is no clear indication that the bonuses they offered previously were successful in attracting “the best and brightest”, so there is no indication that bonuses will work in the future.
  3. However, from listening this morning to clips from AIG Chairman Edward Liddy’s testimony yesterday before the House, it seems to me that Congress has the shoe on the wrong foot with this one. They’re right that there are any number of technically legal ways to renege on whatever contractual obligation obliges them to pay these bonuses, but they seem oblivious to the danger of adhering merely to the letter instead of the spirit of the law. Liddy seemed to make it clear: We can get the bonuses back, and we’ve already asked them to voluntarily return the money. But the danger is that the key people in these departments will be offended at being shorted pay they were expecting and were entitled, above board. The danger in offending these people is that they might quit – and these are the people charged with working as hard as they can to ensure that AIG can pay back the ridiculous debt owed to the US government. If they quit (or worse, sabotage the company) on the grounds that “the government made our company refuse to pay us” (even though the pay they were entitled to was excessive and inappropriate), who will come and take their place? Third rate accountants? Temps? It will be a given that the company will collapse under the weight, not of its debts or poor investments, but of employees who refuse to do the work necessary to resolve a crisis.

    As it appears that Edward Liddy is sensibly refusing to use legal loopholes to rob these overcompensated accountants, Congress is now rushing toward a special tax bill to take 90% of all bonuses from companies that received bailout money. I can’t put my finger on it, but this strikes me as the sort of thing that is likely to backfire, or at least have very surprising consequences.

3 thoughts on “Poor Judgement?”

  1. Not to mention the dubious precident this puts forward: Congress can now decide to tax the begeebers out of any particular group it feels doesn’t deserve it!

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  2. This is the first time I know of that there has been a minority that was small enough and hated enough that Congress had the political power to use the tax code as a weapon on them, they’ve had that power on paper since they passed the 16th amendment.

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