The AIG bonus issue: a viewpoint

Posted: March 17, 2009 in Uncategorized
Tags: , , ,

There is a lot of noise and disapproval about AIG giving ample bonuses, to its executives, after having been a recipient of a huge bailout package from the US government. The general sentiment is that why should the bailout money go to enrich few individuals, that too, so amply?

The sentiment is right in it’s place, and from the point of view of public perception, it makes all sense.

But here is another viewpoint to the same issue.

And I must admit at this point that I do not know a lot about AIG and it’s matters, in particular, and that my argument is about the concept, and not so much, about the specific case.

Say, a company (in this case, AIG) is in big trouble. And the only way that it can be rescued is, by getting some external aid (like the bailout, in case of AIG).

Now, if the company is in big trouble, besides the money, it will also need exceptional management skills to bring it out of trouble. Maybe the current management is no good, and which has caused the company to be in its present state of trouble, in the first place. Fair enough. Then, there is new management that needs to come in, and fix the mess.

So how does a troubled company get in new and capable management? Why would a smart team come in, and work for a company, which at best, can be rescued back to life, and quite likely, it may continue to flounder, or even sink? Why would a capable team leave their current assignments and come in, to do this rescue act? Or if there are a few good team members, in the company, why would they stick on, and not leave to take care of their own careers??

Not everyone is a Lee Iacoca. Not everyone is doing out of personal motivation – for the brand, for the company, for the country. All those things are fine, but people have their own lives and their careers to worry about.

So if an individual or a team decides to take up this huge challenge of bringing out the company from it’s deep hole, they need to be rewarded fair and well. Perhaps more than fair and well. Because they are taking a risk that they do not need to take.

Of course, the structuring of the package can be done well, and can have a huge incentive on success, but even without success, a basically decent package is required to get the person/s in, in the first place.

So even as it appears wrong, as per public perception, I believe that decent packages, perhaps inclusive of good bonuses, are a need, at such times. Otherwise, you pay peanuts, get monkeys, and lose the bailout money without rescuing the company after all!!

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  1. While I agree to your point of view about giving incentives to motivate the management to revive the company, if the bonus goes to the existing management who were part of the problem that the organization is in now, it does not motivate the lower rung of employees. The existing executives drew huge incentives and still the organization is in the state where it is now. So incentives to the same guys again isn’t going to give much in return. The next step should be to identify the second layer which is capable to step up and give them the incentive.
    Just my thought …

    • Sanjay Mehta says:

      Completely agree, Kannan.
      Whoever it is that the management (board / government / shareholders etc.) trusts to bring the company out of its troubles, need adequate compensation, to keep them motivated. Just because the company is in trouble, you cannot expect the persons who will likely turn it around, to work for nothing.. !

  2. amreekandesi says:

    I agree with you.

    People raise such a big hue and cry over wall street bonuses, but they dont realise that bonus is such a big part of Wall Street compensation. For Wall street employees (and i talk as one of them), the bonus is the motivation and reward for putting in the effort that they do.

    It is a good point you raise about providing adequate compensation to reward the people who are going to rescue the company. Besides, i believe the bonus pool for AIG was just about $165 mn, which is miniscule compared to usual standards. If you dont pay them, why will they work there?

    • Sanjay Mehta says:

      I don’t know as much about AIG and I was only using it as a conceptual example. That if there isn’t an incentive, why does anyone want to stay and work in a sinking ship?

  3. whats there in the name!!! says:

    I completely agree with you. Man you have hit the bulls-eyes, you are the curtain lifter.. Any company or so called Maalik of companys reading your post would be scratching (god knows what and where). I know few company who earn and sit on the earning (thas not the point here). It should be on money, in time to gain productivity from human resourse.

  4. If you ever want to hear a reader’s feedback 🙂 , I rate this article for 4/5. Decent info, but I have to go to that damn google to find the missed bits. Thanks, anyway!

  5. This is quite a hot info. I think I’ll share it on Twitter.

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