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AIG: Will one more wrong move make this right?

Posted on 06 November 2008 by Carl Mueller

The New York Attorney General Andrew Cuomo has recently announced that AIG will be withholding bonuses and severance pay from the company’s former CEO and other upper level ex-employees. The amount being withheld is roughly $600 million. Cuomo has cited that these expenditures are extravagant and that due to the company’s debt to the American taxpayer they must be stopped. AIG already spent around $120 billion of the government bailout they received and were threatened with legal action unless they stopped “extravagant” spending. While no one argues that the CEO and executives did not deserve the massive fees they aren’t getting, it is wrong for the government to pressure corporations to violate previously made agreements and more wrong for those companies to do so.

Cuomo was correct in his statements calling for a new incentive structure for CEOs. He wants a system where CEOs do not make so much that short-run profits outweigh their interest in long-run stability and success. While admirable in intent, pressuring AIG into cutting off promised pay is as short sighted and irresponsible as the activities and policies that helped create this situation. Cuomo’s belief that an obtuse executive’s excessive severance is extravagant has forced AIG into action. If he called for the cancellation of pensions or health benefits the public would be enraged, but his actions would be equally offensive to the American constitution in either case.

Making one person’s contract less valid than another’s is an affront to every citizen in a country where everyone is supposed to be equal. It is completely evident that the affronted individuals are the easiest to blame for AIG’s and part of America’s plight, but canceling the rights that they are promised in their contracts will lead America down a dangerous path while we are trying to rebuild our economy.

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