Rewarding Failure

March 16, 2009

How can the $165 million that AGI is paying employees be considered bonuses if awarded for failure and not success? And that’s just the start. The bonuses are part of $450 million to be doled out.

Some of my vanished retirement money came from annual bonuses while working at two Fortune 500 companies. Every manager knew never to count on anything extra until the checks were in hand. Why? The bonuses were tied directly to performance: performance of the company, performance of the business unit, and performance of the individual.

Some years were phenomenal. Others were paltry. Or nothing, even if my work was judged stellar. The basic idea was to motivate key managers to drive the company to success.

AGI’s bonuses are actually retention payments and, apparently, not tied to standard financial performance measures. But this begs the question: why pay to retain people whose business unit contributed to calamity at not just the company but across the nation and world?

No wonder populist rage is growing. Former Labor Secretary Robert Reich sums up the big picture of what’s unfolded:

When taxpayers have put up, and essentially own, a large portion of their assets, AIG and other behemoths should be accountable to taxpayers. When our very own Secretary of the Treasury cannot make stick his decision that AIG’s bonuses should not be paid, only one conclusion can be drawn: AIG is accountable to no one. Our democracy is seriously broken.

UPDATE: Skeptical of Reich’s view? Check out more disturbing news about the payments. Seventy-three people received more than $1 million, and some were paid after they left AIG.