AIG Executives in breach of their duties to shareholders with bonus payouts


Photo from CNN
Photo from CNN

Meet Edward Liddy, Chairman of AIG, the insurance giant that is fast becoming the poster child for the blunders in the current financial crisis.
The company remarkably announced today its intention to pay out $165 million in bonuses and compensation after taking more than $170 billion in federal bailout money. Hello?
The company recently had announced losing $62 billion in the fourth quarter of 2008. I’m not a financial guru, but I’ve written up my share of incentive-compensation plans, and this does not add up. Sure, some star performers could be meeting numbers while the overall company struggles, but portions of bonus plans should always be tied to the profit of the company. That’s just common sense management. $165 million?!
AIG is failing. I’ve lost all confidence in Liddy and his management team.
In a letter Sunday to Treasury Secretary Timothy Geithner, U.S. Sen. Russ Feingold urged the Obama administration to explore “legal options” to prevent the millions in AIG payouts.
“I write to ask why any bonuses would be legally required, given the company’s abysmal performance,” says Feingold, D-Wisconsin.
Feingold asked whether the bonuses could be canceled or recouped from recipients, and whether the administration will sue AIG executives for breaching their duties to shareholders.
Let’s hold these executives accountable to the shareholders, which includes us taxpayers. This bonus and compensation payout is a gross breach of their duties to their shareholders.
We don’t need to over-analysis this. It’s obvious in plain sight. Liddy says that without the bonuses, AIG will lose competent talent needed to compete. Really? If they have such competent people, why did they lose $62 billion last quarter? Liddy and his management team are not competent. Their compensation structures are out-dated. We cannot allow these companies to operate business as usual. Their business outlook is obsolete. We need new thinkers and a  new mindset. I often think about JAL’s CEO & President Haruka Nishimatsu and his unique perspective on executive management during these difficult economic times.
The White House officials and members of Congress reacted with outrage. Liddy has agreed to cut 2009 bonuses about 30%. I’m lost for words. Where’s the accountability to the shareholders?
Also Sunday, CBS’ “60 Minutes” aired an interview with Federal Reserve Chairman Ben Bernanke, who said the AIG bailout rankled him. “Of all the events and all of the things we’ve done in the last 18 months, the single one that makes me the angriest, that gives me the most angst, is the intervention with AIG,” he said.

Today’s announcement was just salt on the wounds for all of us. OUCH!