AIG Scrutiny: Basic Questions For Media And Congress Alike
You know it’s bad when even the WSJ’s headline screeches about growing wrath toward AIG’s bonuses.
On This Week, Robert Kuttner made the point that auto workers take pay cuts while the big guys fund themselves bonuses — watch and see if it doesn’t piss you off, too.
Retention bonuses for companies on the brink of financial ruin are not new.
KMart paid them when they filed restructuring bankruptcy a few years ago to keep upper management who knew how to run supplier networks or other crucial components from jumping to a healthier business. Under certain stressed conditions, they can make good business sense.
But, as we reported yesterday, the AIG bonus issue is a bit more complex than simply "is this a retention bonus."
What is most horrifying about this is how little the government appears to have known before doling out the next ladle of public bailout fundage: Did treasury know about these bonuses before doling out TARP monies? How much did they know? We have no idea at this point.
Now THAT is troubling.
The House Financial Services Committee has a hearing scheduled on risk and fraud on Wednesday at 10 am ET. One thing that will need to be determined going forward is whether this is a regular AIG business practice or some sort of "fraud in the inducement" scheme to fund their own bonus payola with ginned up demands for taxpayer moolah.
On the off chance that the media and Congress have no clue what to scrutinize, here are some basics:
– What was paid out? Were bonuses given to everyone in the company from secretarial to top-level management? Or only to a select few at the top?
– Were these bonuses given as a matter of course — at the end of every year, did AIG sort through revenues and projections for the upcoming year and reallocate divvying up revenue remaining after overhead and costs were paid out which resulted in these types of payments? When I say "system," I mean set policy with particulars spelled out? In other words, is this "normal course of business?"
– Or was this something entirely outside the realm of normal practices for AIG or others in the industry? Even taking account the anomalies of the current financial crisis?
– Were payments made to people considered crucial talent? Did they have specialized knowledge crucial to a particular aspect of the business? A rainmaker with a hefty book of client business and/or someone who has brought in a number of new accounts/business through extensive contacts and reputation? Does it make good business sense to reward this person with a payment to retain services?
– Even if that person may have had an off year the past year, does s/he have a history of substantial value to the company and work in a niche that has long-term value, doing something that is inherently risky and mercurial, and doing it well on the whole? Anyone can have an off year but still present much value overall. But some people get bought off to keep their mouths shut about internal fraud. Questions should be asked as to which some of these may be.
– How was the bonus structure decided — in a meeting with recorded minutes that would be publicly available to shareholders? Among the self-same people who received the bonuses but no one else got one? What criteria were used to determine amounts and people receiving them?
– When was the decision made to hand these out? Again, was this normal course of business or something new? Were there financial considerations which led to this — or something else entirely?
These are crucial questions.
Moreover, I want to know what Treasury knew about all of this before handing over the TARP funds. Why the hell didn’t they ask about existing contractual obligations and perform some basic due diligence on them BEFORE handing over taxpayer dollars? Or did they?
What else needs to be asked on this? And what should government be asking themselves before taking any more steps on any of this?
(YouTube — AIG discussion on ABC’s This Week.)
Morning all — pardon me while I grab another cuppa coffee…