Some Will Pay Back AIG Bonuses - WSJ.com

Some Will Pay Back AIG Bonuses

This is, in my mind, a purely fabricated crisis. The legislature has the right to make tax laws. One law they might pass would say that all bonuses paid to employees of companies which receive federal bail-out money are taxable at the 100% tax rate, and the proper amount must be withheld by the employer. If an employee is legally entitled to a bonus by virtue of a contract, the company just issues them a check for, for example, six million dollars gross; but one cent net. Problem solved.

NOTE: the amounts in question are mistakenly labeled "bonuses." That terminology is misleading because it leads us to assume that it means "performance bonus," which it does not. The story reports: "The testimony also revealed a culture of compensation that was highly favorable to AIG's financial-products employees -- regardless of performance. For instance, the employees were paid bonuses in 2007, whether the unit turned a profit or not. The 2008 bonus plan was also designed to kick in without regard to paper losses. In all, the unit reported losses of more than $40 billion last year." Of course, that is not a performance bonus at all. They get it no matter what happens, so it is simply salary, except it is paid to them in a lump sum at the end of the year instead of in smaller weekly amounts.

It is, however, a "retention bonus." The scheme rewards the employee for lasting the entire year. If it were paid out in 52 increments, an employee working 51 weeks would get 51/52nds of it, whereas if it is paid in a lump sum in week 52, an employee working 51 weeks gets zero. It is therefore a "retention incentive." Since these people were fucking up in record fashion, it's safe to say that the longer they worked, the more they fucked up! To put it another way, they were being paid a bonus to stay on longer and fuck up more! A smarter idea would have been to give them a bonus to clean out their desks.