I just don't get how AIG can publicly set aside 500 million for bonuses,
I don't know about AIG specifically but most financial firms have compensation packages for certain positions that are performance based, that operate like this: You get a relatively small salary (small considering it might be a position where you handle 10 million to 100 billion of the firm's money) like 50 or 80k. Then at the end of the year you get a percentage of the profits you create for the firm, it might be 2% or 7%. The payments aren't dependent on whether or not the firm as a whole makes money, just whether or not your particular desk makes money with the pile you manage.
Now imagine you work all year living off what you made last year and your much smaller salary, waiting for that bonus payment which you've already calculated in your head since you know just how much you've pulled in for the firm, then some bondheads in the xyz department do something so stupid it puts the entire firm in peril and they have to go to the government for a bailout. The boneheads, of course, aren't on the same performance based compensation package, they get a full salary, without any performance risk elements attached to it.
Now imagine it is your bonus, which in this case might represent 90% of your compensation, that is the thing they decide not to pay because the public won't understand why they're paying "bonuses".
This happened to a few friends of mine who managed profitable mutual funds during the tech bust. While they slaved away, making money for the firm, some other dufus in another department was losing it twice as fast so the firm as a whole lost a lot that year. They didn't get their bonuses that year which meant they ended up working an entire year for a small fraction of what they were promised at the beginning of the year. |
