Today, in the face of a huge public outcry, which included complaints from both theÂ TreasuryÂ Secretary and the President himself,Â AIG handed out $165 million dollars in bonuses to their executives, many of whom were the primary culprits in causing the financial crisis we’re in today.Â Â AIG CEO Edward Liddy claimed there were “contractual obligations” that prevented the company fromÂ canceling theseÂ bonuses.
I don’t think there’s really any debate about whether or not this situation is fair – it’s not.Â If youÂ start a financial crisis, I think it’s fairÂ to say you don’t deserve your bonus.Â TheÂ debateÂ currently going on isÂ how to punish the executives and make AIG look bad.Â Which leads me to cite one of the best lessons I learned in business school:
Good business is about managing people, not about managing money.
I could care less if the executives get their bonuses.Â AIG borrowed $170 billionÂ from the taxpayers; $165 million is less than 1% of that.Â What I’m more worried about are the wreckless and greedy executives getting paid for causing so much havoc.
It’s the incentive structure that’s broken.Â If we don’t punish these people and reinforce the negative impact ofÂ their actions, they will be the same people on the front lines ofÂ the next bubble, licking their chops and getting ready to startÂ another financial crisis.
These people need to be ostracized in public.Â Congress may not have any legal recourse toÂ get the money back, butÂ we can still get the names of the executives who “earned” their bonuses and force them to testify in front of Congress.Â While this may seem like a spiteful and somewhat immature reaction, I still think this isÂ a critically important part of the rehibilitation process.Â If we don’t get theseÂ white collar criminalsÂ to admit they’re wrong, ten years from now, we’ll be in the exact sameÂ recession caused by the exact same criminals.