View Full Version : AIG and "Bonus" payments

03-17-2009, 12:46 PM
Like many people I was a little angry when I hear about AIG paying for deluxe resort conferences and bonus payouts when they are getting so much money from the government.

That was my first reaction. Then I calmed down.

AIG is an insurance company of sorts. They are a legitimate company with legitimate business practices. However,they insured many companies that indulged in reckless trading and investment practices. AIG is paying off companies to keep the overall market afloat.

Still, the idea of getting a bonus when the company is doing so poorly doesn't make any sense. But it isn't what it looks like on the surface. We think of the word "bonus" as something extra, a gift, a prize. But that is not the definition used by the company.

In contract negotiations some executives are signing a contract that includes quarterly a "guaranteed bonus". In this instance the word bonus means a gift. Now why would you gurantee a gift? To lower how much you pay.

What? Yes. When a salary is paid not only are taxes withheld from the employee check but the employer pays a tax as well on the wages paid. A gift however exempts the employer from paying tax as it qualifies as a gift.
So in contract negotiation an employee who demands $500,000 annual salary also means the employer is paying a certain amount of taxes on that money. So, the employer may counter with a $300,000 paid salary with $200,000 to be paid in four quarterly bonus payments. This means the employee pays all the taxes on the $200,000 and the employer pays tax only on the $300,000 salary payments.

So, the guaranteed bonus payments in the news now are contractually negotiated commitments by the company that pre-date the market failure. The company is obligated to pay.

As hard as it may be, try putting yourself in the place of the employee. You sign a contract with your company for big money but some of it is to be paid quarterly as a bonus. Things go bad and the company looks for help from the government. The government then says you aren't entitled to your payment. But you have a contract! The company owes you that money! That's not fair!

Should you take a pay cut even though you had a contract because the government is afraid of the public's reaction to the word "bonus" in the press?

The expressed outrage by our political leaders I think is just pandering to public ignorance (note: ignorace means they just don't have an understanding, they are uneducated...I'm not saying they are stupid). The politicos want the public to think they share the outrage. In fact they don't. It's just spin.

03-17-2009, 12:58 PM
You are correct, some execs are paid $1, but with bonuses.
But then.... 73 people are getting $1M bonuses.

"Again, these payments were all made to individuals in the subsidiary whose performance led to crushing losses and the near failure of AIG. Thus, last week, AIG made more than 73 millionaires in the unit which lost so much money that it brought the firm to its knees, forcing a taxpayer bailout. Something is deeply wrong with this outcome. I hope the Committee will address it head on."

...this isnt the place for this....end this thread now....

03-17-2009, 01:14 PM
Well, kids not even born yet will be paying for all this crap! Just about Everybody I know is making less than before and there not getting a bailout! So why should employees that work for a company that is getting a bailout that kids yet to be born are paying for still get a bonus? AIG is a big boy that plaid in a risky market they lost! You know what played a big part in this mess is spending money people didn't have! When is Washington going to wake up! This borrowing money= National DEBT has to stop! Thanks for your post but every body should take there lumps....

03-17-2009, 02:36 PM
I'm sorry, the correct term is 'under educated', and not 'uneducated', which bears a huge difference. Yes, people are not stupid, but this is a demeaning post, and frankly it feels as though you are making people out to be delinquents in the matter as you have written to educate us on the meaning of bonuses. This dubious analogy of an employee being paid a waged salary to one that receives bonuses is the undoing of your claim that AIG has the right to follow through with their bonuses.

You are not able to compare the two, if you were (as you have used to try and justify your claim), then you have to bring these bonus salary employees down to our level: waged salary employee. As soon as you do this, two things immediately pop into your head proving that you are unable to use such an analogy as any means for justifying AIG’s right to follow through with their bonuses.

First, since AIG employers are now like every other employer in your analogy, they do not reserve the right to evade paying the additional self employment tax by only partially paying their employees’ wages, and the other half as bonuses. No other employer is exempt from this self employment tax; not a dentist who pays his staff; not a store manager who pays their staff; no one. So what gives them the right to give out bonuses and evade self employment tax by only paying half of their employees’ salaries?

Second, the employees of AIG are now no longer exempt from paying taxes on half of their income. No waged salary employee gets to evade paying 50% or 40% of their income tax. So if the AIG employees are indeed on the same playing field, then they do not receive bonuses, and must pay income tax on all their earnings. No more GIFTS!

It must be said that you can compare apple and oranges, given you zero out the ‘playing field’ via z-scoring (used in statistics) or some other similar method. So If you want to compare the two as a means of reasoning, then they must be measured on the same terms, otherwise your analogy does not work. If you fail to do this, then the argument fails.

All in all, I am very disappointed with the lack of oversight of how tax payer money is used. I am disgusted by the fact that the feds technically own 90% of AIG now, and that AIG is unable to forfeit these bonuses, and am even more disgusted by the recipients who fail to even suggest a 10 year note for their so called bonuses.

I am amazed that you have to tell me and others the definition of bonuses, but more importantly what ignorance means. You literally defined it as if you had your Websters pocket dictionary at hand. It bears the question of why you did not take it a step further and give us an example of ignorance. Do not worry, I’ll pull an example directly from within your post, using your own words.

A true example of ignorance is a person who is “angered when learning of AIG paying for deluxe resorts” to house mediocre business meetings and then claiming them to be “a legitimate company with legitimate business practices.” By the way, I hope you enjoyed footing part of the bill for that resort. Did you get some of that $200 steak too? It’s bewildering to read your post, and figure how you can claim them to be a legitimate company, then have you tell me what ignorance means. Beyond that, I remember as soon as AIG received their first bailout, one week later top execs were receiving a damned manicure at some f$%^ing hotel in California at $450,000 a night. That was News-Week or Times I got that from a while back. So don’t tell me AIG employees’ legitimate business practices unless you are a reporter and have researched this yourself, and have the necessary documents to prove it.

I’m sorry this is turning out to be a rant and somewhat targeted at you Dexter, I just am so annoyed by AIG’s pansy scheme and to listen to people try and grasp the order and magnitude of it is great because it gets people talking about it. But then to hear them claim that they ‘know AIG is a little angle’ and then having to read (in this instance) that I need to be educated on the meaning of what are really rudimentary words is too overbearing.

Zane Condren
03-17-2009, 02:37 PM
Hey Guys,

Please don't discuss this here. There are many other avenue's for these types of discussions.