Implications of the AIG Bonus Imbroglio

Great outrage and indignation have been expressed, from multiple perspectives, in connection with AIG’s retention bonuses and the Congressional response thereto. Now that most of the public, albeit probably not the actual participants, seem to be past the initial burst of emotion, we believe that it is well worth noting that all employers, whether or not they are recipients of Government funds, should pay close attention to the several recently proposed (and competing) bills in Congress spawned by the episode.

These bills show that the politics of populist furor over executive compensation can easily pave the way for hasty and thoughtless regulation, which would (if enacted as written) be counterproductive to the US financial system and economic recovery. The bills also foreshadow possible future and potentially broad legislation that may eventually have negative effects for many companies beyond the financial industry.

Political focus on, and accompanying rhetoric regarding, perceived excesses in executive compensation have been building in intensity for some time. The current legislative impulses, however, raise systemic risks that pose a far greater danger than the issues sought to be addressed by them. In our recent memorandum, entitled “Implications of the AIG Bonus Imbroglio,” we discuss particularly troublesome aspect of the four recently proposed bills, including the lack of an exception for existing binding compensation contracts. The memorandum also outlines possibly unintended and negative consequences to employers, employees and the public alike of the bills and briefly summarizes relevant provisions of each of the bills.

Whatever the immediate prospects for passage may be, we believe that it is important for employers and employees generally to be aware of the substance of the recent proposals even if they are not the targets at the moment.

The memorandum is available here.