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Retention Pay for A.I.G. Workers to Fix Their Mess

Mar 18, 2009

By DAVID LEONHARDT

Published: March 18, 2009

We cannot attract and retain the best and the brightest talent to lead and staff the A.I.G. businesses – which are now being operated principally on behalf of American taxpayers – if employees believe their compensation is subject to continued and arbitrary adjustment by the U.S. Treasury.

– Edward Liddy, chief executive, American International Group

Ah, retention pay. It has been one of the great rationales for showering money on chief executives and bankers regardless of how well they are doing their jobs. It’s just that the specific rationale keeps changing.

In the booming 1990s, companies supposedly had to pay retention bonuses because executives had so many other job opportunities. There was a war raging – a war for talent, said McKinsey & Company, the consulting firm.

Then came the aftermath of Enron, when new scrutiny and regulations apparently made some chief executives wonder if they still wanted their jobs. “I’m thinking of actually getting out,” David D’Alessandro, the head of John Hancock Financial Services, reported hearing from one fellow chief executive. The antidote to such doubts? Retention pay, obviously.

Now comes Mr. Liddy, the government-appointed chief of A.I.G., defending multimillion-dollar bonus payments for the people who run the small division that brought down the company. If the government doesn’t let them have their money, they will walk away, Mr. Liddy says, and nobody else will know how to clean up their mess.

We’ll get to the merits of his argument in a moment, but it’s first worth considering the damage that the current system of corporate pay has wrought. The potential windfalls were so large that executives and bankers had an incentive to create rules that would reward them no matter what. The country is now living with the consequences.

Read the rest of the story: http://mobile.nytimes.com/art/347782/19?smsredirect=true

New York Times

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