After all the hullabaloo over the AIG bonuses — where a troubled insurance giant, having taken $170 billion of government money (the US gov’t now owns 80% of AIG) has decided that it needs to honour its employment contracts and pay out $165 million in executive bonuses — seems to be dying down.
A new article in the New York Times argues that the sanctity of contracts is more important than populist rage.
I ‘d like to point out that, while I wouldn’t turn down $165 million, it’s less than one-tenth of one percent of the amount that the government has invested in AIG. It sounds big to you and me, but it’s a tiny drop in that ocean of money.
But also, I don’t think there would be any hint of that “populist rage” if AIG hadn’t paid bonuses ever before.
Well, obviously, you say. But let me explain. In popular conception, a “bonus” is extra money — above and beyond your regular salary, and given because you’ve gone above and beyond your regular duties as an employee.
Sometimes, they’re tied to specific metrics — like if the stock price goes up a certain amount, you get a bonus. But in Wall Street culture, bonuses have started to become accepted methods of general compensation. Everyone gets them, and they’re just part of your paycheque — except you get them in one lump sum instead of every two weeks.
Despite that, the term “bonus” has persisted. And why not? It’s a jolly, feel-good word! Everyone likes getting a bonus! And people like paying them out, too — it makes them feel special. It’s so much nicer than a workaday “salary” or eep! “wage.”
But imagine if you will, a news article that screamed: “Congress demans AIG explain paying $165 million in wages.” Wouldn’t happen.
Maybe — just maybe — there would be a small investigation into whether “$165 million in executive salaries” was excessive and could be trimmed. But there wouldn’t be this anger about “bonuses.”
I think the bonus culture causes other problems — it’s much better to spread compensation out over the year, and paying it all out of the same pot makes it easier for auditors and investors to keep track of, too. I’m not against a small bonus of appreciation if an employee does something special, or a small gift near Christmas, say.
And if AIG had just done that, instead of wallowing in the idea of a “bonus” — same amount of money, just doled out more rationally — then they wouldn’t be in this PR pickle right now.
Grant Hamilton
3 Responses to “AIG bonuses are a classic case of PR biting you in the back”
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Even going on your assumption – and I think it’s a bit of a reach to play the percentages on this one – you could say AIG deserves a boot enema simply due to the stupidity (arrogance, shurely!) of “bad PR”.
They helped usher in a Great Recession — you’d think they could at least FAKE contrition.
Oh, arrogance for sure. They loved giving each other bonuses in the good times, now they’ve got to shut up and sit down. Frankly, if the Wall Street environment is supposedly so “pay for performance” then there should be some head honchos givin’ up refunds and thanking God that they still have hands (because, in other cultures, losing your hand is the penalty for thieving).
Agreed. I think another cause for righteous anger is that many of the dweebs getting bonuses (most in the millions, for godssakes) were the same ones who created this mess in the first place.