The Wall Street Journal and New York Times both reported this week that current A.I.G. Chief Executive Officer Robert Benmosche is loudly complaining ("boiling over") and threatening resignation over the efforts of the Obama Administration to curb executive pay at the troubled insurance giant. How can AIG recover and effectively regain its market position when the ability to lure or keep executives with outlandish compensation packages is not available?, seemingly wonders the AIG CEO.According to the Wall Street Journal:
"The executive [Benmosche] is chafing under constraints imposed by AIG's government overseers, particularly a recent compensation review by the Obama administration's pay czar, Kenneth Feinberg, according to the people. AIG, 80% government owned since a rescue last year, is one of the companies under Mr. Feinberg's purview.
Last week, Mr. Benmosche and other AIG board members met with Mr. Feinberg in New York. During the three-hour meeting, board members discussed difficulties of complying with pay policies and retaining talent at the company. Mr. Benmosche's frustrations 'hit a crescendo,' said a person familiar with the matter."Seriously? When the federal government with taxpayer money bails out an insurance giant for ridiculously reckless decision making (in the subprime and credit default swap markets), with dozens of billions of dollars, that government is not entitled to or supposed to provide compensation oversight? Really?
And Benmosche's primary argument is that the "talent" is leaving AIG for better pay elsewhere. Again, seriously? He cannot pay to keep the talent at AIG? Is this the same talent that torpedoed the company, which would be in receivership, but for the government bailout? Perhaps Benmosche and other corporate executives decrying the executive compensation limits, should reconsider what "talent" need be hired to revive the failures of the previous "talent."
Professor cummings,
ReplyDeleteHow are you doing? Thanks again for an insightful post. I agree with you fully. AIG is extremely ungrateful. In the corporate world, a salary cap, like we see in the sports world, might be a wonderful idea to borrow. We would still have to fight about who gets a max contract! I don't know if we will ever do anything meaningful about executive compensation in this country.
What a new!
ReplyDeleteI completely agree, not only is Benmosche's fight to keep the very same "talent that torpedoed the company," ridiculous but maybe as the article suggests, getting new talent, with a new perspective would actually whip the company into better shape faster. It is astounding how Mr. Benmosche has the nerve to complain about salary caps, but I wonder if it would have been better for the government to have conditioned receipt of the bailout money on the acceptance of certain terms, including permitting it to set a cap on executive salaries.
ReplyDeleteBenmosche is trying to protect those people who protect him. With new blood in the company, there may be shake-ups that would not necessarily be bad for the corporation or the economy, but for Benmosche himself. It is at this point where we come to the issue of whether it was a good idea to bailout this corporation in the first place. AIG is trying to continue to conduct business much in the same way they have always, where salaries, bonuses and incentive pay are sky high and available to the officers and directors of the company. Instead of giving this company a bailout, an economist's point of view would be to let the company run itself until it becomes insolvent. At this point, investors would buy it at pennies on the dollar with the ability to change its corporate culture and very infrastructure into a more efficient entity.
ReplyDeleteThe sad thing is: Benmosche and his comrades will find jobs elsewhere where they will be paid for their perceived "talents."