Wait Until Geithner Learns About The AIG Deferred Bonus Plan

Tim Geithner is so far behind the curve he thinks the road ahead is straight:

Treasury Secretary Tim Geithner will try to cut down on risky behavior by financial institutions by asking them to tie bonuses to the long-term health of the company rather than short-term gains, according to people briefed on his plans.

As part of a broad financial-regulatory plan to be unveiled this week, the administration wants to put in place reforms to get financial incentives for employees closer in line with the actual results of the company. Basically, it's what bonuses used to be before Wall Street went wild in recent years.

Long before the recent focus on AIG bonuses, the administration was looking at how risky behavior in the financial system was driven in part by incentives for executives to take risky bets for a quick return.

But President Barack Obama has no plan to try to cap bonuses, according to the people who were briefed. The administration said it simply plans to update regulations, not control what people are paid.

I will attempt to flush out more details (although Geithner has access to all this, so an enterprising reporter could ask him), but I will assure you - AIG Financial Products had a notable deferred compensation plan the specific purpose of which was to align the interest of the employees with the long term interst of the AIG Corporation.  Let me offer some gratis psychic "reporting"; enterprising reporters know whom to call for details.

For example - bonuses below a certain level, e.g., $50,000, were paid in cash immediately; this would apply to administrative personnel.

"Mid range" bonuses, e.g., between $50,000 and $2,000,000, were paid out in equal installments over three years.
.
Finally, "Big" bonuses to designated senior personnel above $2,000,000 were paid out over eight years and a portion (1/3) was indexed to the performance of AIG stock.

Some specific, verifiable details:  Per the letter from AIG Chairman Liddy to Treasury Secretary Geithner,
in March 2008 AIG FP had $675 million in deferred compensation held over from previous years, including $92 million payable in 2008 and "$582 million in 'at-risk' pay earned from prior years"; all of this was wiped out by the losses recorded by AIG FP on their credit derivative swaps.

So yeah - wouldn't deferred bonus plans help avoid the next melt-down?  If only someone had thought of that sooner.

BONUS LAUGHTER: Per both the contract governing the recent bitterly controversial AIG bonuses and AIG's Sept 2008 10-Q (p. 103/164), some of the $165 million on bonuses was subject to mandatory deferral and was indexed to AIG stock.  Dare we ask Geithner how much actual cash was disbursed to AIG FP employees as bonus payment in mid-March?  As a supplemental question, how much of the bonus payment that some AIG execs have "given back" was in fact deferred and has not yet been paid?

WHO KNEW:  If only Geithner read the Washington Post.  This is from Feb 21, 2009, with my redundant emphasis:

Since the collapse, many Financial Products employees have lost nearly two-thirds of their compensation under the firm's deferred payment plan, in which bonuses are doled out over several years based on the firm's profitability.

"It's like the stock going to zero," Pasciucco said. "It's been wiped out."

Still, employees who stick around are eligible for hundreds of millions of dollars in retention payments -- half next month and the rest in March 2010 -- a practice that has roiled some members of Congress and further stoked public anger. [You call that stoked?  We'll show you stoked!]  Executives say the payments are justified because few people possess the expertise to handle the mind-bending transactions at Financial Products.

Comments

[hit and run]

February, "retention payments" = roiled and stoked.

March, "retention bonuses" = "the first thing we do, let's kill all the FP employees

[PD]

Still, employees who stick around are eligible for hundreds of millions of dollars in retention payments -- half next month and the rest in March 2010 -- a practice that has roiled some members of Congress

"Witness the power of this fully roiled and operational Congress!"

[kim]

Stock options, baby, stock options. Oh, wait a minute.
==========================================

[Ca,]

Supreme leader wants to see more US rebellion before better ties. Congressmen and AIG...........

[bad]

From TM's link:

However, [WH] officials disputed the emphasis and tone of a New York Times story, posted on the newspaper’s Web site Saturday afternoon, which reported: “The Obama administration will call for increased oversight of executive pay at all banks, Wall Street firms and possibly other companies as part of a sweeping plan to overhaul financial regulation, government officials said.”

They dispute none of the facts, just the emphasis and the tone.

OTOH, it IS a NYT article. How many facts could there be...

[bad]

LOL Hit

[matt]

gee whiz, gummint going off and doing something without knowing all the facts? heaven forbid?

[Charlie (Colorado)]

gee whiz, gummint going off and doing something without knowing all the facts? heaven forbid?

Apparently not.

[MayBee]

Here's my plan.
Before Obama gets to push all the fundamental changes he wants to make in America, he has to point to a success in that field that he is responsible for.

[MayBee]

It's more of a wish than a plan.

[bgates]

It's more of a wish than a plan.

Describe the administration's first attempt to fix the financial crisis.
***
How will sending a video message to the Iranians stop their nuclear weapons program?
***
Why will calling Joe Biden "the sheriff" stop local and state governments from wasting stimulus money?
***

[MayBee]

I'm even thinking, bgates, about his former successes as a school reformer.
Mr. Annenberg Challenge, $150 million on nothing, is going to reform our national school system? I don't think so.

On top of that, his time failing at the Annenberg Challenge was heretofore his only executive experience. Yet he wants to take over businesses and execute health care reform? I don't think so.

What has he ever done, that will inform us about how well he will probably do what he wants to do?

[Daddy]

Impossible, incredible, amazing, astonishing, beyond belief.

Frank Rich, of The New York Times, just shat upon President Obama.

Pigs fly, Hell freezes over, Bear's are Catholic, Pope poops in woods, Cubbies win the Series.

[Jane]

Before Obama gets to push all the fundamental changes he wants to make in America, he has to point to a success in that field that he is responsible for.

I want oversight of the President's salary and other compensation.

I think I would be very good at it.

[verner]

Frank Rich money line:

Another compelling question connects all of the above: why has there been so little transparency and so much evasiveness so far? The answer, I fear, is that too many of the administration’s officials are too marinated in the insiders’ culture to police it, reform it or own up to their own past complicity with it.

He then goes on to crucify, draw, quarter and burn at the stake Larry Summers.

Katrina monemt indeed--only this time it's not just New Orleans that's under water!

[peter (Lenten Sunday dispensation)]

Gee, I automatically skip the Frank Rich column. Thanks for bringing it to my attention.

[DebinNC]

NYT Tobin Harshaw:
Well, unless the White House gang and their Congressional allies can all get on the same page, this Sunday’s morning talk shows may rival the afternoon’s March Madness games for interest and conflict. Look forward to Obama economic adviser Austan Goolsbee and Rep. Barney Frank (”Face the Nation”); Ms. Romer and Rep. Charles Rangel (”Fox News Sunday”); Senator Conrad and Jared Bernstein, the economic adviser to Vice President Biden (”This Week”); Ms. Romer again (”State of the Union); and House Majority Leader Steny Hoyer (”Newsmakers”). Got your Beltway brackets ready?

Not a Republican in sight.. which might not be a bad thing.

[Cecil Turner]

So, what you're tellin' me is, Wall Street compensation already reflects candidate Obama's "core principle" of CEO compensation, but it's just taken his staff six months to bother to check on how it's structured? Oh this just keeps getting better and better.

This displays for anyone with eyes that the President doesn't believe any of the class warfare crap he's spouting, and just using it (and the crisis) for political ends. And because he can't be bothered to keep track of the facts underlying his own stupid posturing, he gets stuck on stupid whilst trying to make the compensation tail wag the financial crisis dog. I note now the lefties are admitting this all isn't important, which is good, but begs the question: why has it been the centerpiece of Democrat policy up to now?

[Gmax]

when your rival is damaging himself publicly, do nothing to impede him.

FOX btw is talking this am about a leak from the Obama Administration about a limit on executive pay that could extend not just to TARP banks but to all public companies.

Hugo is said to have consulted and nodded in agreement.

[mel]

Gmax-

define, please: "executive"

And then once that's taken care of, they can raise corporate taxes to take care of that little excess money problem they're obviously going to have.

Fixed pie economics.

[verner]

Hugo is said to have consulted and nodded in agreement.

No joke. Many very productive people receive most of their salary in bonus compensation. It's an incentive to perform well. If execs are receiving million dollar bonuses while the company's stock price is falling, then stockholders need to fire the board and get rid of the offenders. That's how markets are suppose to work.

If the government sticks its nose into it, you'll just end up with inflated salaries for mediocre performance. Until, of course, the government begins capping salaries.

Yeah! That's the ticket to get us out of this mess!

[Jimmy's Attack Rabbit]

Jeez, I'm now dumber after reading Frank Rich.

[verner]

Newt's twitter on Geithner:

The frank rich column on obama being out of touch is astonishing It is the beginning of the end for geithner

I almost feel sorry for him. Though, he should have known better and never taken the job. When the history is written, I think we'll find he was set up--that's the only explanation I can come up with that makes sense of the total lack of competency we've seen. It's as if Obama and company WANT the economy to fail.

[Jane]

Romer is getting skewered on FNS - and she echo's the idea that the WON will set executive pay from now on/

[clarice]

If Geithner falls, the Dem party can only save its hide by savaging the President and defeating his programs. And they will.

Throw chum upon the water and the mildest minnow behaves like a shark.

[verner]

Throw chum upon the water and the mildest minnow behaves like a shark.

Hee hee Clarice. It's hard to have bread and circuses when you've folded the tent and shot the baker. But then, Ann Dunham obviously never read "the goose that laid the golden egg" to her beloved son, so what should we expect.

[Charlie (Colorado)]

FOX btw is talking this am about a leak from the Obama Administration about a limit on executive pay that could extend not just to TARP banks but to all public companies.

Yeah, that one will work.

Seriously,do you-all notice how well the political immune system is handling Obama? The infection got a foothold, but now as people notice that he actually is the muddled empty hat we thought he was, he losing ground big time.

[Pofarmer]

If execs are receiving million dollar bonuses while the company's stock price is falling, then stockholders need to fire the board and get rid of the offenders. That's how markets are suppose to work.

And that DOES go to the core of the problem. You've got boards making decisions of the outsized salaries of CEO's and others within the company. You've got CEO's making decisions to get the quarterly numbers they need to make their "bonuses" without regards for the long term health of a company. Who needs that R&D budget when you're going to get 100 million bonus and you'll be gone in two years anyway? Shareholders should be in uprising over exective compensation, but they're basically not. why not? I don't think most are cognicent enough to realize that those hundreds of millions paid out are money that SHOULD be going back into dividends or stock prices. Yeah, Those AIG execs deserved those big salaries, as did the others in these big wall street firms that got bailed out. I mean, not just anybody can create a problem so big it takes TRILLIONS of govt dollars to try to work it out.

[JM Hanes]

"If execs are receiving million dollar bonuses while the company's stock price is falling, then stockholders need to fire the board and get rid of the offenders. That's how markets are suppose to work."

I don't know who might have large enough positions in a lot of companies to effectively call such shots. It's my impression that ownership is spread so much more widely (and thinly?) than it used to be that stockholder influence would be extremely hard to exert. It's even harder when Board composition is being shaped by the very people you're most likely to want to get rid of. Such Directors may stand to profit themselves. If not, those who have to rely on corporate execs as the only conduit of info and have little direct contact with corporate staff themselves can be manipulated easily enough when theirs is no substantial stockholder oversight.

[JM Hanes]

**when there is no substantial stockholder oversight**
[hoping Clarice is off making artisanal bread!]

[Gmax]

Define executive? Some wag on another board noted that "rich" seems to be drawn in journalist writings just above where a successful journalist and their professional spouse would likely fall on the chart.

I can do no better than that, other than to remind that the Nazi lust for blood did extend beyond Jews so dont get too comfortable.

[pagar]

FOX btw is talking this am about a leak from the Obama Administration about a limit on executive pay that could extend not just to TARP banks but to all public companies.

What is needed is a limit on book advances for people who have done nothing and probably can't write a book. Those advances were nothing but political contributions disguised. Without them, this country would not be in the shape it is today.

[peter]

Since the stock price of the NYTIMes has plummeted to less than the cost of one Sunday newspaper, can we ask that the overpaid columnists, i.e., Krugman, and Dowd and Rich have their salaries capped, too?

[JM Hanes]

pagar:

Politico has the story too:

Geithner’s new proposals for mechanisms that would push companies to restructure their own executive compensation packages go well beyond limits already in place in the initial Wall Street bailout program, known as TARP, because they will apply even to companies that have not taken government money.

The new rules will focus on “systemically important financial firms,” said a government official with knowledge of the proposal. “The principals of reform are aimed at getting the financial incentives of employees closer aligned with the interests of their overall institutions.”

Obama may be dialing back support for the "bonus tax" but it's only a prelude for the next act. The White House knows how to take advantage of a crisis, even when it's self-inflicted:

After the House passed the bill, the White House issued a statement from Obama saying “I look forward to receiving a final product that will serve as a strong signal to the executives who run these firms that such compensation will not be tolerated.''

I've always worried that what we should be paying a lot more attention to the regulatory overhauls coming down the track, because the sun is not going to set on them any time soon, if ever.

I know I seem to be shilling for Quasiblog lately, but I've been trying to my longer posts off of the JOM threads. I think the bonus issue is just another opportunity to advance the Democrats' "pay equity" agenda, which is a first cousin to European leveling. Ironically, Obama is moving left at the very moment European leadership started shifting slightly right, and he's pushing the European model (with the exception of corporate tax rates, of course) right when they're actually having some second thoughts about social service spending on the Continent!

[MayBee]

I think the bonus issue is just another opportunity to advance the Democrats' "pay equity" agenda, which is a first cousin to European leveling.

That is my sense too, JMH.
It was a part of Ralph Nader's 2000 platform, one that really bothered some of my staunchest of Dem friends.

I am forever baffled at how we choose the "executives" and the overpaid.
Actors? Sports Figures? Authors?
Barack Obama, who made $2,500,000 last year from writing books years ago, went to Jay Leno, who makes about $30,000,000/year to complain about "executive greed".

[JM Hanes]

Don't you just love how Obama talks about just wanting the rich to give a "little bit more"? This is from back in January:

The White House pledged action against "irresponsible" bonuses for executives at bailed-out Wall Street companies as a Democratic senator unveiled legislation to limit their compensation to $400,000 a year.

Sen. Claire McCaskill proposed a law on Friday that would prevent executives from making more money than the U.S. president until their companies no longer rely on the $700 billion Troubled Asset Relief Program (TARP).

No wonder the White House is backing away from the 90% tax on bonuses. If Obama is not allowed to earn more than the President, he'd be kicking in $2,250,000.

[Pagar]

I believe Obama (and/Or his handlers)have a master Plan for salaries and most other things. One can see their plan in action just a few miles off our Florida coast.

"Workers with masters degrees will receive a bonus of up to $4 a month. Doctors will get an extra $7.

The raw figures might seem low but in Cuba - where the average monthly salary is around $15, and accommodation healthcare and education are free, the rises will be welcome. Perhaps all the more so because they come at the same time the Cuban government is launching a campaign against those that supplement their salaries through illicit means."

Castro had to kill hundreds of thousands to get his master plan in place. Chavez looks like he's going to achieve his at the ballot box. It looks like we're just following along like good little copy cats. Hardly any resistance at all. But the result is going to to be the same; impoverished nations destroyed by their own efforts.

LUN