Now we can debate why A.I.G. felt it necessary to guarantee seven executives at least $3 million apiece when the economy was clearly on shaky ground. Perhaps we will find out these contracts were a bit of sleight of hand to enrich executives who knew this financial Titanic had hit the iceberg. But another possible explanation is that A.I.G. knew it needed to keep its people.
That is the explanation offered by Edward M. Liddy, who was installed as A.I.G.’s chief executive when the government effectively nationalized the company last fall. (He is being paid $1 a year.)
“We cannot attract and retain the best and brightest talent to lead and staff” the company “if employees believe that their compensation is subject to continued and arbitrary adjustment by the U.S. Treasury,” he said.
And in the NY Times this morning:
The bonuses that the American International Group awarded last week were paid to 418 employees and included $33.6 million for 52 people who have left the failed insurance conglomerate, according to the office of the New York attorney general.
Really, there's nothing I can add to that.
UPDATE: I blogged too soon. David Leonhardt asks whether retention bonuses are even necessary to retain talent at firms like AIG. The answer, according to his research, appears to be no. Also, in general, Leonhardt's column is a good kickoff for a conversation we really ought to be having about executive compensation at large corporations. You may recall that we already had a national conversation about this earlier this decade, but the collapse of various individual corporations apparently was not painful enough to prompt serious reform. Of course, things are slightly different this time around.
Leonhardt says something else worth nothing:
The larger question is how to change the rules on corporate pay to reduce the odds of future crises. Throughout this crisis, policy makers, starting with President George Bush and Ben Bernanke and now including President Obama, have been a bit too deferential to Wall Street. That deference has fed populist anger, which threatens the political viability of the necessary continuing bailout of the credit markets.
The bonus scandal offers Mr. Obama and Mr. Bernanke a chance to get ahead of the curve — so long as they come up with changes that extend well beyond A.I.G.
I think Leonhardt is on to something here. This mess with AIG has damaged the credibility of the Obama administration, but it also presents an opportunity for the administration to use the populist anger it's generated to build political momentum for real reforms. The administration's handling of Wall Street thus far hasn't inspired any confidence in me that they'll recognize or seize this opportunity, but it's there for the taking nonetheless.