In today's Times, an A.I.G. executive sends Edward M. Liddy, the chief executive of A.I.G., a resignation letter and basically tells him where he can shove his bonus money.
A.I.G. I can no longer effectively perform my duties in this
dysfunctional environment, nor am I being paid to do so. Like you, I
was asked to work for an annual salary of $1, and I agreed out of a
sense of duty to the company and to the public officials who have come
to its aid. Having now been let down by both, I can no longer justify
spending 10, 12, 14 hours a day away from my family for the benefit of
those who have let me down.
He said that he had nothing to do with the portion of AIG that was responsible for the huge losses. He has been working long hours with no base salary, because Liddy had assured them of their bonus money.
He received a bonus of around $742,000 after taxes (probably $1.5m before taxes) and he plans on giving it to charities.
So, what do you think? Do you have sympathy for this man?
On the one hand, nobody should be forced to work 14 hour days for free. If Steve was asked to work those hours for free, I would make him quit immediately. Gotta feed those babies. This guy, in particular, seems to have been a victim of some double talk.
On the other hand, I was irritated by the guy's cluelessness and disdain for politics. A basic mistake that these executives made was to agree to work for $1 in exchange for a bonus at the end of the year. Most people consider a bonus to be extra money that one gets for extraordinary success. Most people never get a bonus. And when the public owns your company, executives have to be conscious of political considerations. They are now public employees. The only reason that this man had a job all year was because of the government and the public's (reluctant) willingness to send them their tax money. He can't complain about politics and at the same time receive its benefits.
There was also some dishonesty about those $1 salaries. Make the people think that you are the good guys while taking secret bonuses on the side? That's not cool.
There are several basic questions on the table. If we own the financial industry, should finance people make average government salaries? Instead of making $400,000 a year, should they make $60,000 a year? Are we going to see huge attrition rates? Those guys work really long hours with a lot of stress at jobs that aren't all that interesting only because of those fat salaries. If we chase them away are we going to be left with the types of people who run DMV?
UPDATE: Read Tim Burke's fun, snarky response. Megan McArdle defends the bonuses. Must read the comments at the NYT.
Apt. 11d 
I snarked a bit today at my blog about his analogy. He sees himself as a plumber who did good work and is blameless if an electrician burns the house down later on. I pointed out that if you’re working for the same contractor and you watch while the electrician not only does something that will burn the house down but the whole neighborhood, maybe you’d expect some hit to your own compensation.
I was a bit curious about his career trajectory overall. Looking him up on LinkedIn, he’s apparently younger than I would have thought. Curiously, he worked at Los Alamos as an intern while completing an MS degree and then went straight into investment banking, working for the Swiss bank UBS, then AIG. I’m guessing from his profile that he specialized in energy commodities trading while at AIG. So he’s got a working career in investment of approximately 16 years.
If he’d been close to retirement, I would assume that this whole letter was a “big fucking deal” kind of thing: that he had enough stashed away from his career that he could make a big gesture and walk away. But if he’s still going to work, I think another calculation is involved: he’s in a field that he thinks will be unaffected by AIG’s blow-up or by the general crisis of the financial sector, that has some continued value. If it’s energy commodities, he’s probably right. So no, he shouldn’t work for what he considers bad compensation, because he’s still got a skill set and experience that has continuing market value. So the grandiosity of his piece kind of comes to almost nothing.
For that same reason, I wonder whether he’s of much specific use in dismantling AIG-F.P.: probably what he’s doing can be done by one of the many people looking for financial sector jobs at a fraction of the cost.
If, on the other hand, you’re an employee of AIG who has little specific advantage over the many, many other job-seekers in this overall line of business at the moment? Then frankly, cut your compensation to 200k, 100k, whatever, and I’ll be you’ll just have to lump it–because it’s better than joining the mass of people looking for jobs in the industry as a whole, particularly if what you’ve got on your resume is the equivalent of, “I worked closely with Typhoid Mary as she danced about spreading disease”.
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I’m just wondering where he’s going to go, and if there’s a net loss to society.
If he quits his job will be taken by the next person in line, who may or may not be as good, but who will certainly work for less than $742,000 a year.
And then where will he go? Will he retire? Spend some time out of the workforce? Or just move to another company in the industry. In which case, do we care? In fact, even if he moves to a company OUT of the industry do we care as he’s still working and producing value (supposedly)?
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” If we chase them away are we going to be left with the types of people who run DMV?”
Not necessarily — we could be left with the type of people who are scientists at NIH and attorneys at DOJ.
I was wondering if you were going to comment on the AIG letter. I don’t have sympathy, exactly for this AIG guy, but I do think he’s proving what his BATNA is (i.e. best alternative to a negotiated solution). He’s saying he’ll quit. We need to decide whether it matters to us if he quits, and if we can replace him with someone good enough to do whatever we want them to do at AIG (whatever that is).
Frank Rich made a comparison between the “contracts” at AIG, and why they should be treated any differently than the “contracts” at GM (i.e. both can be renegotiated if the government is saving the company from bankruptcy). That seems a valid comparison to me, but I do suspect that some folks at AIG have different BATNAs than the line-folks at GM (if not because they can find another job, because they have enough money saved to just stop working).
But then, I’ve never understood the outrage at the outrageous salaries.
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Just talked to a buddy who’s husband is also in the finance industry. She had ZERO sympathy for this guy. She said that her husband’s former bosses who have lost their jobs in the past year are doing just fine. They have such huge nest eggs. One guy is traveling the world. Another guy is starting up a small business just for the hell of it. Another guy has five houses and can live the for the rest of his life off of his investments.
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Nobody’s mentioned these people’s burn-rate yet. A salary which seems princely to us could mean bankruptcy, foreclosure, etc. to one of these guys. Under the circumstances, the incentive might be to a. leave town or b. figure out clever new ways to swindle the company. It can be very dangerous to pay low salaries, or salaries that are perceived as low. When I lived in Russia in the mid-90s, the government generally paid employees a couple hundred dollars a month ($400 was wealth beyond the dreams of avarice, and I met at least one doctor who was making $50 a month). Moreover, the paychecks were often six months in arrears, so government employees tended to be always up to their ears in debt to friends with market-rate wages (sailors, market ladies, etc.). I eventually realized that the people I knew who relied on government salaries and who seemed to be doing well were robbing their enterprises: taking potatoes home from the school cafeteria, skimming food from the old folks’ home, building a garage with bricks diverted from work, etc.
“Not necessarily — we could be left with the type of people who are scientists at NIH and attorneys at DOJ.”
Or, more likely, the kind of people who were one or two steps behind the bankers they were supposed to be regulating.
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What gets me about this thing is that these are the same people who have no problem with the idea of reducing workforce in order to make their profits that much higher at the end of Q4. (Maybe not AIG specifically, but I’ve seen it go down with some regularity at my husband’s company.)
So it’s fine to play with the worker-bee salaries and incentives and jobs, but not their own? Hmmm.
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There was an article from May of last year entitled: “Foreclosure Crisis Hits the Hamptons Like a Publicist’s SUV.”
http://nymag.com/daily/intel/2008/05/foreclosure_crisis_hits_the_ha.html
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“If we chase them away are we going to be left with the types of people who run DMV?”
At least the people who run the DMV seem to dislike everybody equally.
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Dans ce pay-ci, il est bon de tuer de temps en temps un financier pour encourager les autres.
Let us start encouraging.
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Ugh. Having trouble commenting on your blog, Tim. Too busy to figure it out. Where did those commenters come from on your blog? Did a conservative blogger link to you? They were excellent.
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I’m surprised that I do have sympathy with him, in a way. The politicians voted for a law that granted him the bonus, and now they express outrage of the people that they voluntarily voted to give loads of money too. I’m pretty pissed off with the politicians too; they have discovered the vices of extreme wealth a bit late for my liking. He’s pissed off with his boss who, having privately assured him and his colleagues that they would get their bonuses and saw nothing wrong with the deal now, publicly and under pressure, says they are distasteful. I’m pissed off with his boss too.
90% tax rate for people earning over $1 million a year? I’m up for that, and would support any political party that proposed it and looked like it might do well. 90% tax rate on just those earnings that the people proposing the 90% already gave away promising that they would be taxed at an absurdly low rate? Well, I guess I could live with that if I could be assured that it wouldn’t jeopardise the trust necessary for the current government action to work. But could we include a provision allowing those who are taxed at that rate to poke Chris Dodd in the eye a couple of times while the bill is being signed.
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You do see plenty of people defending AIG by pointing out the mistakes of Congress. I don’t see why we can’t be irrate at both without mentioning both on every occassion. Plus, I get vote on Congress. Sure, my district is gerrymandered, but at least I get to cast a protest vote for the Green party.
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I’m glad the guy took a forceful public position. And regarding Tim Burke’s snark, I think it’s not at all clear that the commodity trader profited from the mortgage backed security’s wing of the company (though, he might, if we rescue the company to the point where the company’s stock regains value).
I also really don’t get the outrage at these salaries at AIG, when we pay football coaches at universities more (and, yes, the football coaches say something even more smarmy than AIG about football being a separate entity from the rest of the University, the part that’s laying off TAs and instructors and furloughing professors).
As Harry says, if the problem is that we don’t want people to be pocketing 2M in compensation, it should apply a lot more widely than AIG. I, personally, think that universities that receive ARRA (or whatever they’re calling it) stimulus funds should agree to limits on compensation for all their employees at least as stiff as what we suggest for AIG. And, actually, maybe we should go the full hog and force everyone to comply with wage and price regulations.
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I think a fair amount of the outrage smacks of not understanding what capitalism is all about. I remember once hearing about a poll of different countries, and whether people thought that you should be able to charge more for flowers on valentines day. The apocryphal report usually starts with reporting the percent of people who think it’s wrong to charge more in Russia (the communist version) — something like 80%. But then, they tell you what it is in American — 70%.
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BJ, have you noticed how quickly a university football coach gets fired if the team loses?
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“BJ, have you noticed how quickly a university football coach gets fired if the team loses”
No, and I’m pretty sure not particularly faster than a trader gets fired if he looses big or a lawyer gets fired when he’s not bringing in the big bucks. Big bucks are pretty usually associated with employment instability.
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“And, actually, maybe we should go the full hog and force everyone to comply with wage and price regulations.”
If we have to relive the 1970s, at least we’ll have better haircuts and clothes this time around.
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“I remember once hearing about a poll of different countries, and whether people thought that you should be able to charge more for flowers on valentines day. The apocryphal report usually starts with reporting the percent of people who think it’s wrong to charge more in Russia (the communist version) — something like 80%. But then, they tell you what it is in American — 70%.”
During the Soviet period, it’s very doubtful that more than one in ten Russians would have known what Valentine’s Day was, but if you insert International Women’s Day (March 8) into the story, it becomes more plausible.
My principal in mid-90s Russia was a literally card-carrying communist. She wasn’t shy about telling you that life was better under Stalin. In her opinion, it was very wrong that two kiosks, right beside each other, each selling the same products, had different prices.
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It’s true that coaches are rarely fired mid-season and most coaches with a previously successful career can last for a few bad season. However, I think the football equivalent of needed $170 billion (and counting) is punting on 2nd down each and every drive.
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” In her opinion, it was very wrong that two kiosks, right beside each other, each selling the same products, had different prices. ”
Yeah, but the punchline of the story is that the majority of Americans (or was it American children? or something) felt the same way.
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“If we have to relive the 1970s, at least we’ll have better haircuts and clothes this time around.”
Speak for yourself. If we’re going back to the 70s, I’m growing a mullet.
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MH,
How far are you prepared to go with facial hair?
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