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Cap and Break [Updated]

March 17, 2009

“Hey, French Cowboy, you didn’t like the salary cap on Wall Street, but surely you must be against the payment of bonuses to AIG employees?”, you say. Well, my answer is non. The French Cowboy believes that those bonuses should be paid. Here is why:

– AIG is not in trouble because they overpaid their employees. Not paying those bonuses is going to change factually rien about the (pretty desperate) sitch that AIG is in.

– The reason politicians call for the bonuses to be withheld is because they want to make people believe that they’re fighting for justice. But they have no idea whether those individual bonuses are deserved or not. Holding back bonuses gains them cheap political points. Getting AIG out of the ditch through a genuine overhaul doesn’t (admittedly, it might also be impossible).

– There appears to be a misconception of what bonuses really are. Bonuses are part of the compensation system. They come on top of the base salary, but they are not decadent luxuries for the employees. They are used as an extra incentive to simultaneously filter out the best among potential employees and to make those people give their best. If AIG had integrated the bonuses into the fixed salaries would anybody complain about the millions of dollars given out as ‘salaries’ and say that those are undeserved? After all, this company has failed, this means that their employees have not been doing their jobs, right?

– Those bonuses have been fixed in contracts. Should a populist outrage be enough to breach legal, private contracts? You may say that tax payers technically own AIG now. But they don’t have voting rights. It’s a snafu, no doubt about that. But if perceived public opinion is used as a justification for breaking a legal contract between a company and its employees you end up with a weird mix of dictatorship and anarchy.

Beneath the thin veil of ‘justice’ of this wish to rescind the bonuses lies the wish of Ivan that Boris’s goat may die.

Update:

Here’s another reason why the bonuses should be paid: Freddoso points to the provision included into the so-called stimulus bill by Chris Dodd that states the following concerning TARP:

The prohibition required under clause (i) shall not be construed to prohibit any bonus payment required to be paid pursuant to a written employment contract executed on or before February 11, 2009, as such valid employment contracts are determined by the Secretary or the designee of the Secretary.

First they explicitly put this into the bill and then they fake outrage at such bonuses actually getting paid. Note to greedy fat cats: do as the pols will want you to later, not as they wrote into law!

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