Experts weigh in on AIG's executive bonuses

March 16, 2009 7:52:45 PM PDT
The president says he wants to stop AIG from using taxpayer dollars to pay $165 million in executive bonuses; AIG says the money was paid out last Friday.

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Obama says AIG has no business handing out bonuses.

"This is a corporation that finds itself in financial distress due to recklessness and greed," Obama said.

The government has given AIG $170 billion to keep it from collapsing; the president said the executives who took the insurance giant to the brink do not deserve any bonuses.

"I mean, how do they justify this outrage to the taxpayers who are keeping the company afloat," Obama said.

AIG's CEO justifies them by saying they were part contracts signed to keep employees from bailing out of the company when it started to go down.

At the University of California, Berkeley's Boalt Hall Law School, an expert on executive compensation says legally, AIG has no choice.

"The amounts involved are not in dispute, the obligation to pay them is not in dispute and they have to be paid," Professor Jesse Fried said.

Fried says it is not even good business to renege on the bonuses; they were paid to keep executives from leaving AIG, and those executives are still needed.

"The people at the very top that made the bad decisions are out; these are lower level executives who the company needs on a day to day basis and if we don't pay these people what we promised them then they will leave and the U.S.. taxpayer will be left with very little," Fried said.

But the idea of using tax payer dollars to reward executives at a failing company makes taxpayers angry, and politicians are very aware of that anger.

"These are people, we are told, who are getting retention bonuses, if they were in high school they'd be getting detention not retention," Chairman of the House financial services committee Barney Frank said.

That plays well with the public, but if the Obama administration were really serious about pulling back those bonuses, one would have to ask why the Treasury Department just recently sent another $30 billion to AIG. That question was asked at Monday afternoon's White House briefing.

"To some degree there are legal instruments and contracts that predate this administration," Press Secretary Robert Gibbs said.

Meanwhile, New York's attorney general insists he is going to find out the names of the AIG executives who got the extra pay and he is going to investigate to see if the payments are fraudulent. Executive search firms tell ABC7 it is not uncommon to pay bonuses to executives to keep them from fleeing a firm that is in financial trouble.

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