First Collective Quarterly Loss in Recorded History for S&P 500

[Malthus]

Or you could simply say to these guys "you are not getting a bonus. If you don't like that, find a job elsewhere that pays better".

What are the chances that masses of disgruntled financial types from insolvent companies would find alternative lucrative jobs in this economy? Is there someone out there just dying to hire them?

My impression of the financial sector is that it is laying off folks in droves, even senior positions.

I think the main problem is contractual obligations. They can't not pay the bonus because they'd be sued for it. Stupid to call it a bonus, though.

That may well be true, but the issue I was answering was that payments of this sort (that is, to "retain" valuable employees who would go elsewhere if they were not paid the bonus) were in fact rational - which seems sort of difficult to support in this market.

[Berkut]

Seems like a tall order to claim that they are not rational based on...what? That the market is bad?

I think that requires a greater level of information about AIG and their business than any of us possess, and at best presumes that the lowest denominator level of mass assumptions are all exactly correct. That seems very unlikely to me.

Hell, I worked for a company that paid out bonuses to people after going thought 33% lay-offs. That doesn't seem rational either, but in fact made perfect sense, if you understood the business we were in.

[KRonn]

Is there difference in nature between this and reopening a collective agreement for a union ?

Collective bargaining agreements can only be modified in bankruptcy.  The agreements can also renegotiated under the threat of bankruptcy.  But where there is no Union, the company would have to bargain with each individual employee separately.

I do understand that there are contractual agreements that aren't so easy to break. And that it's easy to pile on these corps for these dealings, too easy a target perhaps. Or maybe not, depending on how things were done, given that govt money is being used.

But one thing I wonder with all of these, is when a company, and especially the division (Derivatives div of AIG in this case) that incurs the huge loss, is still in line for bonuses (retention, incentive, etc). Poorly done contracts, I'd have to think, since there isn't more in them tied to the actual performance and earnings. You'd think that an insolvent  corp wouldn't be giving out bonuses, and the employee contracts would reflect something along those lines. Because ordinarily, if not for govt bailout, they'd likely have to rethink and redo, or maybe not give the huge bonuses. I  know that's simplistic, and I'm just a chattering class, but the bottom line is massive failure by these guys but still, contracts legally binding have to be given out. Surely such contracts should be done better. Doesn't make sense. And now that these same guys have brought raze and ruin upon the economy, of course they're going to get slammed for everything, even if in a business sense some or all of it is legal and all.

Also reading the newspaper, it reports that the 165 million is just the first amount. That they'll be giving out well over 1 billion in variously worded type bonuses.

[garbon]

I'm sad that people are mad at Obama because he's not taking action (just talking) when really they should be annoyed that he made such stupid remarks lately.

[Oexmelin]

What happens is that skilled non-unionzed labor that knows it can put into that position, and thus often negotiates a form of security in terms of guaranteed payments up front, or upon termination.  Not likely they will give that up when there is no mechanism for collective action.

That's a good general point.

Unless I am mistaken, AIG's bonus are not for termination ?

[garbon]

But one thing I wonder with all of these, is when a company, and especially the division (Derivatives div of AIG in this case) that incurs the huge loss, is still in line for bonuses (retention, incentive, etc). Poorly done contracts, I'd have to think, since there isn't more in them tied to the actual performance and earnings. You'd think that an insolvent  corp wouldn't be giving out bonuses, and the employee contracts would reflect something along those lines. Because ordinarily, if not for govt bailout, they'd likely have to rethink and redo, or maybe not give the huge bonuses. I  know that's simplistic, and I'm just a chattering class, but the bottom line is massive failure by these guys but still, contracts legally binding have to be given out. Surely such contracts should be done better. Doesn't make sense. And now that these same guys have brought raze and ruin upon the economy, of course they're going to get slammed for everything, even if in a business sense some or all of it is legal and all.

The what happens when you need a government bailout clause?

[Malthus]

Seems like a tall order to claim that they are not rational based on...what? That the market is bad?

I think that requires a greater level of information about AIG and their business than any of us possess, and at best presumes that the lowest denominator level of mass assumptions are all exactly correct. That seems very unlikely to me.

Hell, I worked for a company that paid out bonuses to people after going thought 33% lay-offs. That doesn't seem rational either, but in fact made perfect sense, if you understood the business we were in.

The decisions in any individual case may indeed *be* rational. The problem is not the *content* of any one particular decision made by these companies - it is the fact that the decision-making capacity of those managing such companies has become rather suspect, due to systemic failures at every level in corporate governance.

To Martify up an analogy, this bonus issue is a skin blemish which is merely a sign, one of many and by no means the most important, that the patients - the companies at issue - are suffering from a serious and possibly fatal disease. You may well argue that the blemish in issue isn't a rotting pustule but rather a beauty mark, and as we are not physicians we can't really be sure; but the fact that the patients are in the terminal ward suffering from other far more horrible symptoms and require a steady IV drip of public funds merely to stay alive at this point makes one suspicious that the spots breaking out on the skin are not necessarily benign.

[garbon]

The decisions in any individual case may indeed *be* rational. The problem is not the *content* of any one particular decision made by these companies - it is the fact that the decision-making capacity of those managing such companies has become rather suspect, due to systemic failures at every level in corporate governance.

To Martify up an analogy, this bonus issue is a skin blemish which is merely a sign, one of many and by no means the most important, that the patients - the companies at issue - are suffering from a serious and possibly fatal disease. You may well argue that the blemish in issue isn't a rotting pustule but rather a beauty mark, and as we are not physicians we can't really be sure; but the fact that the patients are in the terminal ward suffering from other far more horrible symptoms and require a steady IV drip of public funds merely to stay alive at this point makes one suspicious that the spots breaking out on the skin are not necessarily benign.

Okay, drama queen.

[saskganesh]

... the executives could voluntarily waive the bonuses in order to escape the landmine of their contracts. any of them done that?

[HVC]

Sen Grassley has the answer:

http://www.msnbc.msn.com/id/29733519?GT1=43001

[garbon]

Wow.

[Berkut]

I love the entire witch-hunt vibe of this entire thing. It is so refreshingly medieval!

[The Minsky Moment]

What happens is that skilled non-unionzed labor that knows it can put into that position, and thus often negotiates a form of security in terms of guaranteed payments up front, or upon termination.  Not likely they will give that up when there is no mechanism for collective action.

That's a good general point.

Unless I am mistaken, AIG's bonus are not for termination ?

No they are for "retention"

My understanding is that earlier last year, AIG as an entity started to coming to grips with the disaster that was their CDS portfolio.  They were concerned -- with some reason - that large numbers of employees in that division would simply walk out the door, leaving the company helpless trying to figure out what was in the portfolio and how to manage it.  So they set aside a chunk of "bonus" money for that group and guaranteed that those who stayed on to help work out the portfolio would get a share.

This may have been a pretty reasonable response at the time to deal with a urgent crisis, but it now looks rather ugly because it amounts to rewarding many of the same people who helped create the mess.  Then again - life isn't fair.

The government knew about this at the time of the rescue - the existence of the retention bonuses was discussed in press stories from last year - it just seems everybody kind of "forgot" about them until the payments were finally made this week.

[The Minsky Moment]

... the executives could voluntarily waive the bonuses in order to escape the landmine of their contracts. any of them done that?

IIRC Most of the top AIG executives agreed to waive their standard performance bonuses and take $1 in salary for 2009.

[Malthus]

The decisions in any individual case may indeed *be* rational. The problem is not the *content* of any one particular decision made by these companies - it is the fact that the decision-making capacity of those managing such companies has become rather suspect, due to systemic failures at every level in corporate governance.

To Martify up an analogy, this bonus issue is a skin blemish which is merely a sign, one of many and by no means the most important, that the patients - the companies at issue - are suffering from a serious and possibly fatal disease. You may well argue that the blemish in issue isn't a rotting pustule but rather a beauty mark, and as we are not physicians we can't really be sure; but the fact that the patients are in the terminal ward suffering from other far more horrible symptoms and require a steady IV drip of public funds merely to stay alive at this point makes one suspicious that the spots breaking out on the skin are not necessarily benign.

Okay, drama queen.

Heh, want to see drama? Read the chart in the OP. 

To state that these companies have collectively made bad decisions lately and there is something systemically amiss with corporate governance is merely to state the obvious.