Yes, this is a follow-up. I wrote about AIG on Tuesday and Wednesday, so why should Thursday be any different?
But before I continue, a personal note. When I was writing about retention plans previously, I had forgotten that I was once a beneficiary of a retention plan myself. Perhaps some of my readers may not believe this, but in a previous portion of my corporate life I was once judged to be a key employee. As a result, I was offered, and signed, a contract stating that I would receive additional compensation if I remained with the company for a defined period. Now I'll be the first to admit that it wasn't a million dollar deal, but it was something that would have made me think twice if a competitor had tried to lure me.
Back to AIG. I haven't read or heard all of the details of the House subcommittee hearing yesterday in which AIG head Edward Liddy testified, but I have heard little bits and pieces of both the hearing and the hoopla surrounding the hearing.
First, as I've noted previously, the former management at AIG made a decision that it needed to ensure that certain key employees were given incentives to remain with the firm, and therefore entered into contractual agreements with these employees.
Second, both before and during the hearings Barney Frank was doing his best to imitate Joseph McCarthy, demanding that Liddy reveal the names of all of the people who received the bonuses, and following up his demand with the "we have ways of making you talk" threat of a subpoena. This morning, Bill Handel of KFI played the audio of Liddy's response, in which we basically read two of the many death threats against AIG employees and their families, and then stated that he would only release those names to the subcommittee if the names would be kept completely confidential.
Third, various Congresspeople continue to find any way possible to negate the contractual agreement between AIG and its employees. The latest effort comes from Representative Charles Rangel, who has introduced a bill to tax certain compensation (in other words, the AIG retention payments) up the hilt to ensure that the employees get little, if anything. As Mike Dunford notes, Rangel is going against his own previous statements on the matter. Previously, Rangel had said that the tax code is not "a political weapon." Apparently he changed his mind due to public uproar.
So, what have we learned here?
Let's say that you're an employee of a firm in trouble, and the government steps in to try and help. Now one would think that when new ownership steps in, they'd want to make efforts to keep as many of the existing employees around as possible, in order to benefit from the employees' expertise - expertise that the new owners don't have. (How many financial investments have Barney Frank and Charles Grassley designed? And don't count Social Security - it's going broke.)
Yes, you'd think that the new owners would want to retain the existing expertise, but the government doesn't work that way.
A Congressperson's prime goal in life is not to make AIG financially viable. A Congressperon's goal in life is to get re-elected. And if the only way to get re-elected is to screw the employees of the firm you are managing, then so be it.
So what would you do if you were an AIG employee? I like the way that Anthony Citrano phrased the question on Tuesday:
“If you were a middle-aged M&A person at AIG, your retirement savings hammered, two kids in school, and the big life-changing bonus that was promised to you is finally going to be paid out, would you refuse it in light of all the teeth-gnashing of the last 48 hours?”
This sparked a discussion about the moral issues involved, but based upon the events of the last 72 hours, here's what I'd do if I were an AIG employee.
- First, I would keep that bonus, primarily because if I were to voluntarily give it up, Charles Rangel would probably try to tax me anyway, or put me through so much red tape that I'd probably be begging Charles Grassley for a sharp implement.
- Second, I would take immediate steps with anyone who has my address and employment history (credit card companies, school districts, what have you) to ensure that all steps are taken to keep confidential information confidential.
- Third, I would find new employment as soon as possible, and get as far away from AIG as I can. AIG is probably in a situation where the best and brightest have already bailed anyway, and when I have clowns like Frank, Rangel, and Grassley looking out for me, I'd be better off as a greeter at Wal Mart.
At this point, one of the chief barriers to the recovery of AIG is the lack of accumulated financial expertise at the company. Because of the departures of key employees over the last few months, and the prospect of losing other key employees in the future, AIG's continued viability is not assured.
Should someone catch this piece of fine print, then the Franks, Grassleys, and Rangels of the world will then begin to harrass Edward Liddy, asking him why he didn't do anything to retain key employees.
Unless Liddy himself has departed too, to return to enjoying his well-deserved retirement. Heck, if I had been before that committee, I would have resigned from AIG then and there.
P.S. Harry S Truman is most famous for the plaque on his desk that read "The Buck Stops Here." With all of the outcry over the lavish bonuses paid to AIG "executives," shouldn't the people who are really running the show - namely, the U.S. Congress - do the right thing and take pay cuts becasuse of AIG's continuing poor performance? What do you think, Senator Grassley?
[UPDATE 12:40 PM: MONA HAS SHARED THAT THE HOUSE PASSED A 90% BONUS TAX BY A 328-93 VOTE. GLAD THAT 93 MEMBERS OF CONGRESS STILL HAVE SOME COMMON SENSE.]