posted
As a tangent, I'm really enjoying a blog I found while trying to find the answers to my own questions. It's Start Making Sense ("Unfair but balanced commentary on tax and budget policy, contemporary U.S. politics and culture, and whatever else happens to come up"), written by Daniel Shaviro, the Wayne Perry Professor of Taxation at New York University Law School. "My research mainly emphasizes tax policy, government transfers, budgetary measures, social insurance, and entitlements reform."
Great stuff, very concise and readable. I'm enjoying flipping through his archives.
Posts: 14017 | Registered: May 2000
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posted
The US gov't has approximately 80% of AIG. In any colloquial usage I'm familiar with, that is "owning". I would rather it didn't. I would rather it had been sold off, and quickly. But saying the US government doesn't own AIG is approximately the same as saying the sky isn't blue and the moon is made of green cheese.
Fannie and Freddie are now gov't owned, in about the same way as AIG, but they weren't before. They were private businesses with access to a better rate of credit from most businesses. That was a stupid situation, too, but it was nothing like the government owning them.
And how on earth would that mean the government owning "all the house titles"? Fannie and Freddie don't own all the house titles, and other mortgage companies don't, so why would the government if it owned Fannie and Freddie?
Posts: 15770 | Registered: Dec 2001
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posted
CT, some musings about other reasons why the financial industry may have moved towards bonuses being a larger portion of most employee's compensation package:
I am partially compensated by bonus. My bonus target is 13% of my salary. It is calculated by taking how the company performs for the year, turned into a percentage by some arcane formula, multiplied by how my business unit performed, multiplied by how I performed personally, determined by my rating at my annual review, multiplied by my target bonus. So if I made $100/year, and everyone performed exactly as projected, I would get a $13 bonus. If it was determined that the company performed at 75% of goal, business unit at 100%, and me at 200%, I would also get $13. Except not really because there are no bonuses paid if the company does below some percentage in the low 90s and individual performance is capped at 110%. Also, this is oversimplified, as the three parts aren't weighted equally. But whatever.
My company has a pension plan. Bonus payouts aren't included in pension calculations, only base salary. So if I received my 13% bonus every year and retired after 40 years, my pension would be calculated based on my salary of $100/year, not my earnings of $113/year.
But I wouldn't have made $100/year for 40 years, because every now and then we get raises! Raises are calculated on base salary, not salary plus bonuses. So if I get a 5% raise, I get it on $100, not $113. I have gotten a raise each of the last three years, and made less money each of the last three years than the year before, because my bonuses have gotten progressively smaller. Which is why we don't refer to it as our bonus target, but rather what we've got "at risk."
Of course, this means that the company isn't doing as well, so since bonuses are paid based on performance, I shouldn't be making as much. But I haven't been making less based on my performance, or my division's performance, because my division and I have gotten excellent (objective!) ratings. I came in 6% under budget last year. My bonus was not based on a cut of that, more's the pity. Giving people part of their income in bonuses means that you can actually reduce your personnel expenses without laying people off when you have a bad year, rather than just keeping them steady by not giving raises.
So giving part of someone's compensation as a bonus allows for some financial advantages for the company that aren't related to taxes, and the more someone makes, the greater the advantage to putting a higher percentage as a bonus. For someone making, say, $50,000/year, with a 10% bonus target, it's not a huge deal. For someone who's total compensation is going to be $500,000/year, making $100,000 of it salary and the rest a bonus makes a huge difference if you have other benefits that are based off of salary, or when raise time comes.
Posts: 7954 | Registered: Mar 2004
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posted
Ahhhhhh ... lovely. Well, or not, but what I mean to say is that I appreciate your thoughts and taking the time to write them out. It really helps.
Posts: 14017 | Registered: May 2000
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quote:Originally posted by ClaudiaTherese: I believe I read it in a Globe and Mail article, and I'm figuring out how to sign in to view that column. The article preview seems to suggest it's there, but there is not a complete sentence quoted from the area I need.
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Added: I can't get into the Globe Investor right now. However, I've Googled up Nate Silver's (FiveThirtyEight.com) column, Why AIG Paid the "Bonuses" from March 19, and it looks to be a good read.
Found my source (Floyd Norris) for companies not being able to deduct salaries over $1 million.
Posts: 644 | Registered: Sep 2008
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posted
There is an aweful lot of speculation going on here.
We speculate that these executives worked for a $1 salary and were to be compensated by 'retention bonuses'. Where is the proof of this?
If these executive are so convinced they are being fairly compensated, then let them publish their actual yearly salaries, and as separate items, all other forms of compensation. As majority stockholders, I think we have a right to know.
Let's look at an alternative example. The major banks after a recent meeting with Obama threatened to pull out of the 'bail out' program and return the money they had already borrowed.
My question is, if they can return the money so quickly and easily, why did we give it to them in the first place?
What is really happening is that they would rather fail completely than allow themselves and their compensation to be reviewed. They would rather destroy their company than let anyone know how much money they are making. And THESE are the people we are trusting our financial recover to? I don't think so.
Back to AIG, about 420 executives received what now appears to be $450 million in bonuses (according to HartfordBusiness.com). Now, the overall number is only a small portion of the greater problem, but it is symptomatic of a system unwilling to change.
How can you justify these bonuses, or deferred salary, if you prefer, when your company is bleeding money fast than a severed jugular? How does this show any financial responsibility and prudence? It simply doesn't. It shows a continued irresponsibility, and a take the money and run attitude.
I try to imagine if Labor or Farm/Agri-business had cause an equal destruction of the world economy. I imagine martial law and armed troops in the street. I certainly don't see the govt handing out massive fortunes to them for their irresponsibility.
But since this is Wall Street and the financial section, it is business as usual. The rich get richer and the poor get screwed.
Now another diversion, let's look at the Auto and Airline Industry. They are continually looking for concession from labor, while never taking any concession in the executive branch. CEO and other executives continue to make more and more while labor have their salaries, lifestyles, and pensions decimated.
Again this shows total irresponsibility. This is greed run amok. If these executive (auto, air, financial, or insurance) really and truly believed in their companies and themselves, they would be willing to make some sacrifice to save the day and the company. But clearly, they are not. Yet, I have no doubt, at the same time they are not willing to sacrifice, they would have no problem demanding huge sacrifices from the rank and file. Which again only continues to illustrate their greed and irresponsibility.
The only reason labor is forced to knuckle under is because wealthy executives have huge capital reserves they can fall back on. It is not hard to wait out a financial crisis when you've got several millions in investments to tide you over. But the average worker, is living paycheck to paycheck, and would be lucky to last a few months with no income.
Again, the AIG bonuses are symptomatic of a system and of executives who are not willing to change from business as usual even when 'business as usual' has plunged the world into economic crisis.
Since we are the MASSIVELY largest shareholder in this company, I think that gives us certain rights to influence the directions and actions of the company. How can AIG claim they are serious about turning the company around with such financial irresponsibilty? With such unwillingness to sacrifice in any way their multi-million dollar lifestyle, when their company is crumbling around them. Greed is the only answer.
The only way these massive and excessive compensation packages can be justified is because they are making even more money for the company. How can any actor or athlete justify their 8 figure salaries? Because guys like Dan Radcliffe can guarantee a near billion dollar return on a Harry Potter movie. But his salary would be completely unjustified if those movies were only returning $10 million.
The same with talk show hosts. How can Leno or Lettermen justify their salaries of solid 8 figures? Because their shows are huge cash cows for the networks and they deserve their fair share of the money they generate. But, if there shows were tanking, and losing huge amounts of money, they certainly could not justify those salaries - contact or no contract. Not when they are professing an intent to save the company.
And considering that AIG is losing money faster they any company in the history of the world, excessive 7 and 8 figure salaries ARE NOT justified under any circumstance, and it is only arrogances that prevents the executives form seeing this.
The same is true of executives who think they can justify expensive multi-million dollar 'sales' retreats, a couple million to redecorate an executive office, or a few million on a corporate jet. These are gross and unconscionable reflections of a lack of understanding and a lack of financial restrain that is fully justified and necessary in hard economic times like these.
As citizens who are risking our money to help the irresponsible and incompetent, and as now massive shareholders in these businesses, how can we allow such blatant financial irresponsibility to continue. The board and executive staff have a financially mandate to put the shareholder first, to act on our behalf. They are grossly failing to do that.
Contracts mean nothing when a company wants sacrifice from labor or rank and file employees, why should those contracts carry any more weigh for executives? Answer: they shouldn't; they should have been force to renegotiate the same as is done with labor in a crisis.
The bonuses and current compensation structure shows a complete disregard for the health and continued existence of the company. It show total and continued financial irresponsibility.
So, let the executives quit, let them try and find a job in the current market, especially after they abandon the company in time of crisis. That just doesn't look good on a resume. Yeh, I'll be here to steal the cash in the good times, but the minute things get tough, I'm gone. That definitely sounds like someone I want on my team (sarcasm, in case you didn't get it).
You can't tell me these people are serious about solving the problem, when they engage in such financially irresponsible behavior.
quote:I take this action after 11 years of dedicated, honorable service to 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.
In other words, "I'm such a loyal, selfless, Christlike human being that I agreed to work for nothing. And all I ask in return for working for nothing is the respect of my employers and $160,000,000 of taxpayer money."
Anybody here who's so selfish that they wouldn't take a $1 salary under those terms?
posted
The absolute most he could have been in line for is under $2 million. That might well have been less than his previous annual salary, given his position, and he only would have received it for working for a year (for six months, $1; for eleven months and twenty days, $1) from when the agreement was made.
And if he had agreed to work for absolutely nothing, that would be one thing. But he agreed to work for $1 a year, plus that retention payment provided he kept working through that period. Then the government told him he couldn't have 90% of what he was agreed to be paid.
You're slamming a guy who agreed to work for a certain period for a certain amount being indignant when the agreed-upon amount of money gets slashed to 10% of what it was? Imagine your job told you at the end of the year that you had to hand 90% of what you'd been paid back. Would you be indignant? Lets even assume you work for the government, so it'll be taxpayer money.
Posts: 15770 | Registered: Dec 2001
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posted
I'm not slamming him for being indignant over the loss of money. I'm slamming him for the false piety in the paragraph I quoted.
quote: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.
If that's really the case, and he's still getting $1 for fulfilling his duty, why is he quitting?
Posts: 2804 | Registered: May 2003
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quote:If that's really the case, and he's still getting $1 for fulfilling his duty, why is he quitting?
Maybe because he's getting screwed bigtime? (or rather, some people are trying to)
quote: I'm slamming him for the pious attitude he took in the paragraph I quoted.
*shrug* Depending on whether or not he did in fact intend to take a pay cut (with the bonus factored in), he did a good thing there. Not saintly, because hey, millionaire, but not to be scorned either.
Posts: 17164 | Registered: Jun 2001
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posted
This whole "$1 down" is a scam. Executives can always claim reduced salaries, and yet make it up in other forms of compensation; stock option, expense accounts, free car, free house, massive termination 'bonuses'.
Why is this guy quiting? He probably knows a sinking ship when he sees one. I also notice he doesn't mention his severance compensation. It would be nice to know what that is.
And, how bad does he want to save his precious company. Apparently not enough to forgo millions in compensation.
How can he say he is working for $1 when he knows he can coast for a year and collect millions. That bullSh!t.
Again, I point out we are making massive speculations based an limited and partial knowledge of the situation. In his letter, this guy certainly portrayed himself in the best light. Can't blame him for that. But if he thinks we can't see through the Bull, he is sadly mistaken.
In testimony before Congress AIG said, that a massive portion of the bonuses we going to the very people who caused this problem, in order to keep the talent in the company. Screw that. I say let those sucker burn.
And it is not all the fault of the companies. The government at various and many levels failed massively in this mess; some do to greed, and some do to incompetence, and some do to both.
Some one posted this article earlier in this thread, but is is well worth posting again to encourage people to read it.
When you read about the greed, corruption, back room deals, good ol' boys networking, and incompetence at all levels of government and industry, I just don't see how you can not be outrage, and how you can have a shred of sympathy for any of these people.
The only people I have sympathy for are people like you and me who are being screwed over by government being in bed with big business. Odd that they sleep together, but we end up getting screwed.
quote:If that's really the case, and he's still getting $1 for fulfilling his duty, why is he quitting?
Maybe because he's getting screwed bigtime? (or rather, some people are trying to)
He's getting screwed by people who only want to give him $1 for doing his duty. But that concluding paragraph specifically says that he was willing to take an annual salary of $1 because he felt that it was his duty, and not because that $1 salary came with millions of dollars in bonus money.
If the letter directly said that he was quitting because he was being screwed out of a bunch of money, perhaps it would open up an honest discussion. But the way he puts it is disingenuous at best.
He's playing semantic games, trying to inflate the moral value of his position by deliberately confusing the issue of salaries and bonuses. If someone reads that letter and is wrongly upset because they don't understand why he feels he deserves his bonus, he's got no one to blame but himself.
Posts: 2804 | Registered: May 2003
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And if he had agreed to work for absolutely nothing, that would be one thing. But he agreed to work for $1 a year, plus that retention payment provided he kept working through that period. Then the government told him he couldn't have 90% of what he was agreed to be paid.
If he was such a smart guy, he should have asked for cash on the barrelhead, realizing that a company that has failed as massivly as AIG did might promise things it can't deliver.
quote:You're slamming a guy who agreed to work for a certain period for a certain amount being indignant when the agreed-upon amount of money gets slashed to 10% of what it was?
Did he make that agreement with the government who now pretty much owns AIG, or with AIG, the spectacularly bankrupt company?
quote:Imagine your job told you at the end of the year that you had to hand 90% of what you'd been paid back.
Most people have contracts where they get paid as they go. These financial types didn't want that. Working for a company that has, through its own terrible judgment, completely collapsed is a risk. Working for such a company, trusting that it will be able to pay you tomorrow for work done today, is an even greater one.
Posts: 575 | Registered: Feb 2007
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quote:Merrill Lynch & Co. ("Merrill") paid out several billion dollars of bonuses in December 2008, before their merger with Bank of America Corporation (BOA) was consummated but after Treasury allocated $10 billion in Troubled Assets Relief Program (TARP) funds to Merrill and after Treasury’s initial injection of $15 billion in BOA. In contrast to the bonuses awarded by AIG, the Merrill bonuses constituted a significant proportion of allocated TARP funds, were not locked into place by preexisting contract, and were performance, not retention, in nature.
This seems, on the face of it, to be a very different beast. This is the first I've heard about it though, so I'm waiting to see what other information comes up.
Posts: 2907 | Registered: Nov 2005
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posted
Yes, the Merrill Lynch bonuses are very troublesome. Unlike the AIG retention payments, which were given in light of the financial trouble AIG was going through with the intent of keeping the few people performing decently from leaving, and using minimal funds (an amount less than the yearly compensation of the previous CEO, combined), Merrill's payout seems to be with some idea that they can continue giving out gigantic bonuses for no other reason than to reward people.
Posts: 15770 | Registered: Dec 2001
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