Yesterday, there was a letter in the Times from Jake DeSantis, an executive vice president of the American International Group’s financial products unit, to Edward M. Liddy. It explains why he is quitting AIG and giving his bonus (which he kept referring to as a "retention payment") directly to those affected by the economic downturn. You can read the whole letter here.

It's an interesting letter. And I see his point: if you work for one dollar for 12 months because you've been promised your entire salary at the end, you would feel entitled to recieve the promised remuneration.

Here, however, is where the train rolls straight off the tracks...where to start? Where to start?

An executive VP of the financial products group DIDN'T KNOW about the credit default swaps? Everyone I know on the street has been talking about them for more than a decade.

An executive VP of ANY division has never met the CEO? As in, Liddy is appointed in October and never meets with the senior staff?

Are DeSantis' criticisms of Liddy objectively true on their collective face? Especially about negotiating with Treasury and the Fed last fall with full knowledge of the bonuses?

DeSantis says he worked for one dollar for a year. He also says that he's been with AIG for 11 years. It's likely he hasn't been working for a dollar a year for 11 years with a year end bonus. When someone came to him more than a year ago and asked him to cut his salary (which must have been huge, since the net bonus after taxes was about three-quarters of a million dollars, meaning the total was well over a million) it didn't strike him that something was wrong? VERY wrong? And he didn't go around to find out WHAT?

Those are my initial questions....what are yours?

DocJess :: Another Side of AIG

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Another Side of AIG | 2 comments

My reaction (0.00 / 0)

To me, these are the fascinating paragraphs:

At no time during the past six months that you have been leading A.I.G. did you ask us to revise, renegotiate or break these contracts - until several hours before your appearance last week before Congress.
I think your initial decision to honor the contracts was both ethical and financially astute, but it seems to have been politically unwise. It's now apparent that you either misunderstood the agreements that you had made - tacit or otherwise - with the Federal Reserve, the Treasury, various members of Congress and Attorney General Andrew Cuomo of New York, or were not strong enough to withstand the shifting political winds.
You've now asked the current employees of A.I.G.-F.P. to repay these earnings. As you can imagine, there has been a tremendous amount of serious thought and heated discussion about how we should respond to this breach of trust.

DeSantis is implying that renegotiation would have been possible, if management had just leveled with them. Of course, that works both ways: a proactive executive VP of AIGFP could have brought this to management themselves.

I tend to believe the rest of Wall Street was worried about the principle of renegotiating bonuses and what it would mean for other firms that took government money, and pressured Treasury and AIG not to do it. They bent to the pressure, and the whole thing blew up in their faces.

by: SarahLawrence Scott @ Thu Mar 26, 2009 at 12:48:07 PM UTC

Wrong or Right (4.00 / 1)

Well, this was a private company when the contracts were established. Though in my mind, no one deserves the kind of money some of these folks get. That still doesn't diminish the fact that AIG had signed into contractional agreement with these employees. The employees did nothing wrong and were put under an unfair microscope by the media and politicians, which in turn stirred up undue public outcry.

The only legal way to have avoided the mess, in my mind, would have been to either renegotiate the contracts when there was a need to take government money, or declare bankruptcy and break the contracts.

These employees were being paid to stay on to close down the FP division. AIG wanted to make sure they stayed through the end, so they made the contracts payable on completion. Smart on business terms, but the terms were excessive in my mind.

by: MisterEd @ Thu Mar 26, 2009 at 14:01:16 PM UTC