by Lesley R. Chinn
While President Barack Obama announced a $15 billion package to help small businesses, he eprimanded insurance giant AIG (American International Group) on Monday for recklessness and greed.
The issue gained attention and questions arose about whether AIG should break contracts or hand out
$165 million in bonuses to top executives after taking billions of dollars in federal bailout money.
Dr. Kenneth Johnson, professor of management at the Kellstadt Graduate School of Business at DePaul University said in general, most organizations make bonuses contingent on the organization’s financial health.
“If the bonuses would jeopardize the financial health of the organization, they would not go into effect. In a case where the U.S. Government provided funding so the company would not fail, it would seem this would qualify as a situation where employee incentives would be null and void,” he said.
While he stated that it is unethical for AIG employees to accept the bonuses even where the contracts were entered into before the bailout last fall, he noted conditions should have been attached but time was of the essence.
After news of the AIG bonuses came last weekend, Obama ordered his Treasury Secretary Timothy Geithner to block AIG from awarding them to executives. Promoting his stimulus package, Obama made a speech about protecting taxpayers against greedy, failing corporate giants.
“For top executives to award themselves these kinds of compensation packages in the midst of this economic crisis is not only in bad taste – it’s a bad strategy – and I will not tolerate it as President,” he said in a Sun-Times report.
According to the Associated Press, AIG used $90 billion-plus in federal aid to pay foreign and domestic banks, some of which were the recipients of multibillion-dollar federal government bailouts. But AIG
reported company losses this month at $61.7 billion for the fourth quarter of last year.
The recipients included Goldman Sachs at $12.9 billion and three European banks – France’s Societe
Generale at $11.9 billion, Germany’s Deutsche Bank at $11.8 billion; Britain’s Barclays PLC at $8.5 billion. Merrill Lynch, which is also reportedly undergoing federal scrutiny of its bonus plans and now part of Bank of America, had received $6.8 billion as of December 31. Other recipients included Citibank at $2.3 billion and $5 billion to UBS of Switzerland. The money went to banks to cover their losses on complex mortgage investments, as well as for collateral needed for other transactions.