The House moved swiftly to quell public furor over bonuses to AIG executives Thursday, voting by a wide margin to heavily tax the money awarded to employees of the insurer and other companies bailed out by the government.
The 328-93 vote imposes a 90% tax on any bonuses given to employees with family incomes of more than $250,000 at firms that received more than $5 billion in bailout money.
Rep. Charles Rangel, the top Democrat on the House tax-writing committee, said the bill was a “red light” to companies receiving taxpayer aid. “Don’t dare try to take a bonus and get away with it,” he said after the vote.
President Obama said the House vote “rightly reflects that outrage that so many feel.”
http://www.usatoday.com/news/washington/2009-03-19-aigvote_N.htm
Ah… democracy. The public wanted the bonus money back and now they are going to get it. I wonder whether the government thinks on its own because right now it is mob rule.
The government is making AIG, Goldman Sachs and Citigroup even less desirable to work for; and at the same time demonstrating their skill at circumventing contract law by inventing new ones.
First, let me make it clear that I don’t work in any of the aforementioned financial institutions nor do I work in the banking or insurance industry at all.
But I believe the following:
- The bigger the institution, the better people they need. This is because of the extra bureaucracy and complexity of a large company.
- Most people don’t deal with insecurity well. Especially uncertainty related to their job and finances.
- The best talent is mobile
- Better performers generally get a bigger bonus than weaker performers
Imagine if the top 10% of AIG’s staff left!!! By applying the tax, the government would in one fell swoop lower the compensation of the AIG’s top staff by a pretty substantial amount and remove much of the incentive to perform.
And with their bonuses lowered by such an extent, many of those workers could probably find a job with a salary similar to their lowered compensation but with considerably less stress!
All this leads me to believe that AIG, Citigroup, etc will be worse off after this law is passed. If we feel that these institutions are beyond or not worth saving then by all means try to recoup every dollar you can.
But if you believe as I do, that AIG must be saved at all costs, then mucking around too much with employment conditions could cost the public more in the long run.
When employees are hired, they expect to receive a certain salary.
Bonuses, if they are contractually written into the terms of employment, are almost like a sort of salary. They have to get paid.
On the other hand, if AIG is issuing bonuses outside of these contractual arrangements, then I believe there should be some greater scrutiny of this. Ultimately though, they might still need to be paid.
The question is: How important are the people receiving these bonuses to the restoration of the health of the company?
Frankly, the company will lose even more taxpayer money if all the best staff leave. And if the government intervenes, it won’t stop at just AIG. The best staff (AKA the most mobile) will start leaving any firm that has received government money for fear that their compensation will be affected.
(Almost) Nobody good is going to stay at AIG out of goodwill. That’s a fact of life.
Thinking out Loud 