Thursday, March 19, 2009


The AIG scandal, and I do see it as a scandal, seems to be the latest preoccupation with Congress. Yes, I'm outraged as the onion gets peeled back to find the legislative culprits that contributed to it, and am compelled to comment.

First, the scandal exists at a value of $165M, of a total amount pledged to AIG of about $300B, or roughly 0.05%. This is in the face of total TARP funding that appears to be pushing the $2T threshold, or a total fraction for AIG of about 15%. In other words, except for the obvious outrage, it almost seems petty.

Second, I started thinking about the word 'bonus'. From, it is derived from the Latin word for 'good'. Think 'bon bon', or simply 'bon'. Think of a bonus as a kind of tip...a reward for good performance, such as you would give a waitress for bringing the cream with your coffee without being asked, or bringing the check after a quiet nod across the room.

I work for a relatively conservative manufacturing company. Bonuses are typically reserved for those at the director level and above, to include vice presidents and division presidents, and corporate bigwigs. Sometimes they deign to give bonuses to lower level employees, but never as a matter of course, and rarely to the level that they receive them for themselves...that is to say, a serious fraction of their already serious paychecks. Really...don't you consider 50 to 75% of $175K truly excellent coin? But I also don't begrudge them for their wisdom, experience, and hard work that got them to a position of real responsibility, ensuring that the workforce is motivated, focused, and coordinated to deliver product on time and with good quality, often at great sacrifice to their personal lives.

Even then, the amount they receive is a mere drop in the bucket compared to the offerings of the financial institutions: enough money to cause me to think about quitting work and retiring very comfortably on just that one check. The numbers proffered in the AIG case approach this level, so I have to ask exactly what qualifies one for a bonus, and how is the amount determined?

For instance, if I gave my broker $1000 to invest, and after a year he returned $900, losing me money, I'd suggest he didn't really earn a bonus. What if he returned $1100? I consider that to be slightly above expectations, but that's what I pay him for. $1500? That would be extraordinary, and I'd be thinking about offering some kind of tip, or bonus...perhaps 10% of the amount over my expectation.

AIG is stating that the bonuses were offered as part of an employment contract, apparently without any obvious performance goals, with results that have brought the world economy to its knees and possibe ruin. I don't understand. Worse, it's stated that unless AIG is bailed out, things will be worse. In other words, they are blackmailing us to bail them out.

In its simplest terms, this is the equivalent of getting paid for showing up, with no accountability for the poor decisions and the high risks that they took with our money. It's the equivalent of giving A's for effort in class, or trophies and certificates for kid's sports teams for 'participation'. It's the price we're being asked to pay for the dumbing down of everything, where character counts for more than accomplishment...except here I don't see any character worth rewarding.

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