AIG Retention Bonus

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Mar 15, 2009 12:37 pm

Does anybody else think that its time that retention bonuses go away?



The AIG debacle is the latest example of ridiculous behavior of companies.They are not alone...Merrill paid god knows how much to Thain and his crew before they were acquired by Bof A.  If I read one more time that in order to keep their "good people" they have to pay them these enormous bonuses while they run their companies into the ground I may have to buy stock in American Standard from puking so much!. It just doesn't pass the smell test.


How can we ever instill confidence in our industry if we allow these firms to continously shoot themselves in the foot for one thing or another. I say its time to get rid of all this fluff, I don't care if its producers or management. If we have to pay bonuses, why not pay them for perfomance....period. Let us not forget that we are in the business of trust. It's time to bring back integrity and ethics in the financial services industry.


 
Mar 15, 2009 8:49 pm

Foot, looking from the outside in, your comments make sense.  However, if you did not pay retention bonuses, you could no longer pay recruiting bonuses (i.e. upfront money).  Why?  If you didn't like a merger you were involved in, you could just jump to the competition for an upfront bonus.  Otherwise, your firm risks losing thosuands of brokers to the competition.  Now, the argument could be made that if NOBODY paid retention bonuses as part of industry "standard practice", then it wouldn't matter.  But how do you unwind a standard practice in the industry?  It is, of course, a free-enterprise system.


Personally, I agree.  I don't understand how people could get paid hundreds of thousands of dollars (or more) to continue working in the same chair, for the same firm, with the same clients.  I could understand a small "transition package" for the advisors getting acquired (to compensate for the lost productivity to learn new systems, possibility of losing a few clients, etc.).  But if you are the acquirer, what the hell are you getting compensated for?

Mar 16, 2009 9:52 am
As you put it, the outside in is the client or the shareholder. Help me understand how the retention bonus helps either.
Mar 16, 2009 10:38 am

It doesn't.  Show a WB/AGE client that almost 400 page debate on the retention bonus and I'd bet clients would leave by the hundreds.  Just out of principle. 


The AIG thing was just one more thing in a line of stupid moves.  If those people had any class at all they'd say they were contractually obligated to pay the bonuses, but to a person, all those who were entitled to the bonuses have turned them down.  Ultimately things like that will kill a balance sheet and then the company will follow suit. 
Mar 16, 2009 11:23 am
footsoldier:

Does anybody else think that its time that retention bonuses go away?



The AIG debacle is the latest example of ridiculous behavior of companies.They are not alone...Merrill paid god knows how much to Thain and his crew before they were acquired by Bof A.  If I read one more time that in order to keep their "good people" they have to pay them these enormous bonuses while they run their companies into the ground I may have to buy stock in American Standard from puking so much!. It just doesn't pass the smell test.


How can we ever instill confidence in our industry if we allow these firms to continously shoot themselves in the foot for one thing or another. I say its time to get rid of all this fluff, I don't care if its producers or management. If we have to pay bonuses, why not pay them for perfomance....period. Let us not forget that we are in the business of trust. It's time to bring back integrity and ethics in the financial services industry.


 



+1

Mar 16, 2009 11:56 am

Employee retention is a huge issue, even outside the financial services field. Being a relatively new transplant to the industry, 'retention packages' did seem to be an awfully strange practice to me. Part of the charm of the corporate world, at least where I came from, was that nobody was irreplacable. I always believed that the most compelling thing a company could do to keep its employees was make it a great place to work, and get the hell out of the way of the producing people. That 'retention' money will only last so long, and then you are still working at the place that you think sucks. If you were thinking of leaving, it was likely because you didn't care for working there, not because of the payouts.


I agree. It seems to be an archaic practice that cheapens the business.
Mar 16, 2009 12:45 pm

Obama is on TV raising hell about the AIG bonuses.  Unfortunately, it's probably just more political rhetoric.

Mar 16, 2009 5:59 pm

see my previous comments on Quaisi-Rents


 
and price controls in the market for labor. How dare the Yankees pay Derek Jetter $28 million? How can he be worth that much? We need a new Baseball Player Pricing Authority because who ultimately pays this? the Fans of course.
Mar 16, 2009 11:04 pm
MinimumVariance:

see my previous comments on Quaisi-Rents


 
and price controls in the market for labor. How dare the Yankees pay Derek Jetter $28 million? How can he be worth that much? We need a new Baseball Player Pricing Authority because who ultimately pays this? the Fans of course.
 
As for me, I've disavowed Pro Ball of all variants. I'm not going to spend one dime paying the salaries of professional athletes. If Jeter, A Rod, Ramerez, and the likes were on fire next to me, I would pee on any one of them in order to put out the fire. Simply not interested in supporting the medium.
Mar 17, 2009 10:26 pm

<---- me laughing at AIG paying out $165 million in bonuses (or whatever they paid) and getting major negative backlash, while ML paid retention bonuses of $4 billion and executive bonuses that were more than that!!!

Mar 17, 2009 10:30 pm

be mindful that aig, holding company is separate from the individual entities. the profitable operations in p&c and brokerage will die without the bonuses. 

 
it's that simple, and the issue is not about right and wrong.  there will be nothing left for taxpayers to recoup without the bonuses.  the talent and their massive books of biz will leave en masse.
 
the choice is to destroy the entire organization over a matter of principle, or to allow the functional components to rebuild with top talent that wasn't involved in credit default swaps. 
 
in other words, the challenge is to resist reacting emotionally (as they do in washington) and act like capitalists
 
 
 
 
 
 
Mar 19, 2009 9:03 am

the profitable operations in p&c and brokerage will die without the bonuses






 
Husky-
 
This is exactly what's is so wrong in our industry. People actually believe that they deserve these outrageous BONUSES. If the companies take TARP money, our money, then its a whole different ballgame.
 
Deleveraging is necessary to get back to reality. Clearly there is a groundswell against  retention bonuses.
 
I wonder how wirehouse reps feel right now...
Mar 19, 2009 9:14 am

Our visceral reaction to AIG bonuses aside, the core issue, at least as I see it, is that these bonus agreements were in place BEFORE the waste hit the rotary air mover. As such, the employees are entitled to their bonuses. Now government should, in the interest of fairness, hold it's collective nose and see to it that future agreements are more in line with taxpayer sentiments. (When all is said and done, that's all government cares about.) It's a very slippery slope we're on when we let government decided after the fact whether or not someone should get what they negotiated for in good faith.

Mar 19, 2009 9:53 am

If we don't learn from the transgressions of the past we are destined to repeat it.

 
Bonuses should be paid based on merit. The slippery slope would never have happened if they had run their companies appropriately.
 
Greed, arrogance and stupidity.
Mar 19, 2009 10:10 am
footsoldier:

If we don't learn from the transgressions of the past we are destined to repeat it.



Bonuses should be paid based on merit. The slippery slope would never have happened if they had run their companies appropriately.



Greed, arrogance and stupidity.






No question whatsoever.



My point, however, is to ask what will happen when the precedent has been set to allow the legislature to tax the bejeezus out of anything and everything that they deem is excessive compensation. We all know that that would be nothing but a cash cow to those conniving hypocrites.



Mar 19, 2009 12:07 pm
footsoldier:

If we don't learn from the transgressions of the past we are destined to repeat it.

 
Bonuses should be paid based on merit. The slippery slope would never have happened if they had run their companies appropriately.
 
Greed, arrogance and stupidity.
 
Do you realize what most of the AIG bonuses aer being paid for?  These are not being paid to the few hundred people at the AIG CDS division that got them into the mess.  Those people are all long-gone.  The bonuses are going to the people they hired to UNWIND the mess.  Bascially, they hired (or transferred) a bunch of people into the Derivatives group and offered them bonuses if they stayed until the mess was cleaned up.  The bonuses were basically why they came.  Why else would someone want to come and clean up hundreds of billions in swaps and then just walk away with nothing?
 
Don't assume that all these people are just corporate fat-cats like the stupid Senators and Reps would like you to believe.  This is not about the individuals and their bonuses.  It's about politicians and political maneuvering.  They want the taxpayers to think they are taking those "corporate fat-cats" to task on their behalf, because that's what they think the taxpayers want.  Well, they are doing it wrong.
Mar 19, 2009 4:17 pm

B-

 
Who gets 1M bonuses? It ain't the secretaries...its the upper management.
 
If you get beyond the government doing it all wrong...it comes back to the companies. If they had done it right, none of this would have occurred. The real question is who created the problem?
 
Mar 19, 2009 5:16 pm

foot,

It's not always the management getting 1M bonuses. It's a LOT of salespeople (business development) too.  I would guess the gov't wants AIG to stay in business (it's got a little cash riding on it). So, is it so smart to screw over some of the company's best salespeople by taxing their bonuses basically away?  No, they are going to leave (along with their relationships), and go somewhere where their talents are appreciated (and compensated for). Does that help or hurt AIG? it HURTS it badly. Way to go Gov't., Obama and Geithner are geniuses!
Mar 19, 2009 5:18 pm

Retroactively taxing income is a d*** thing to do, plain and simple. If the income was gained illegally, take it back. If it was gained legally, and you don't like it, tough. Change the law.

Mar 19, 2009 5:41 pm

I agree the precedent is alarming. Most of us despise government intervention for all the reasons you and Val site. The only way for us to avoid intervention is to act responsibly and when we see abuses don't look the other way and make excuses for bad behavior. We can not reward unethical or bad business practices.


We have to get rid of the excesses. No more bonuses for recruiting or retention. Pay for performance. Stop the madness at the top that gets the little people so pissed off. Have Boards of Directors of these companies actually look out for the shareholder and the client. Bring back integrity , make appropriate ethical choices, and sometimes weed out those that can't or won't work under that paradigm. If we continue to make excuses for bad behavior, we invite more trouble create more anxiety and in the end we end up with the government telling us how to run our companies.
 
The financial services industry is not in peril...yet. Let's hope we can be the beacon of light and create a place where clients can again have faith in us and our markets.