Today, in the face of a huge public outcry, which included complaints from both the Treasury Secretary and the President himself, 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. AIG CEO Edward Liddy claimed there were “contractual obligations” that prevented the company from canceling these bonuses.
I don’t think there’s really any debate about whether or not this situation is fair – it’s not. If you start a financial crisis, I think it’s fair to say you don’t deserve your bonus. The debate currently going on is how to punish the executives and make AIG look bad. 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. AIG borrowed $170 billion from the taxpayers; $165 million is less than 1% of that. 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. If we don’t punish these people and reinforce the negative impact of their actions, they will be the same people on the front lines of the next bubble, licking their chops and getting ready to start another financial crisis.
These people need to be ostracized in public. Congress may not have any legal recourse to get the money back, but we can still get the names of the executives who “earned” their bonuses and force them to testify in front of Congress. While this may seem like a spiteful and somewhat immature reaction, I still think this is a critically important part of the rehibilitation process. If we don’t get these white collar criminals to admit they’re wrong, ten years from now, we’ll be in the exact same recession caused by the exact same criminals.