A.I.G. Bonuses, Ethics, and the Rule of Law
It’s not unethical to pay people money you are contractually obligated to pay them. Even if doing so makes you, or other people, want to pull your hair out. It’s the right thing to do. Not always because the person getting the money deserves it, in some abstract sense, but because you promised.
From the NY Times: A.I.G. Paying $165 Million in Bonuses After Federal Bailout
The American International Group, which has received more than $170 billion in taxpayer bailout money from the Treasury and Federal Reserve, plans to pay about $165 million in bonuses by Sunday to executives in the same business unit that brought the company to the brink of collapse last year.
Word of the bonuses last week stirred such deep consternation inside the Obama administration that Treasury Secretary Timothy F. Geithner told the firm they were unacceptable and demanded they be renegotiated, a senior administration official said. But the bonuses will go forward because lawyers said the firm was contractually obligated to pay them….
You don’t have to like it, any more than you have to like providing state-appointed attorneys to child molesters (not that I’m comparing…well, you know.) Anyway, the point is: there are some things a civilized people governed by laws (rather than by the passions of the moment) have to uphold. The right of the accused to assistance in his defense is one; the right to speak (even if what you say is abhorrent) is a second; and the fulfillment of contracts is another.
The key source of outrage here is the fact that A.I.G. execs did such a miserable job, and yet are being rewarded with public money. Isn’t that worth violating even legally-binding contracts? Two points need to be made about that.
First, let’s not forget that although there is surely plenty of blame to go around within the walls of A.I.G., it’s highly unlikely that every single one of the people who is owed a bonus payment was derelict in their duties. I’m not sure it’s fair to want to punish everyone.
Second, if people are owed bonuses despite having done a lousy job, that means a mistake was made when the bonus system was set up. Putting appropriate incentive structures in place is, believe it or not, a challenging corporate governance problem. It looks like bad choices were made in setting that system up at A.I.G. And, unfortunately, those are bad choices that the U.S. taxpayer inherits (along with many others, no doubt) as the new de facto owners of A.I.G. It was a miscalculated (perhaps inept) promise, but the solution is not to renege on that promise now.