This could only happen in America.
The insurance giant AIG that is more than a little responsible for the current economic crisis reportedly has decided to lay out $503 million of early deferred compensation to top employees so they won’t abandon a ship that is being kept afloat only by billions upon billions of taxpayer dollars.
Think about that for a minute, folks. These are the same guys whose unfettered greed and arrogance helped destroy the housing market and bring about the worst economic downslide since the Great Depression. Why would anyone want to keep them? Is it so that they can continue to exert policies that have doubled the amount of government aid first estimated to be necessary to prevent the company from collapsing? That puts the new figures in the neighborhood of $150 billion. By the way, AIG’s losses amounted to $37.6 billion in the first nine months of 2008.
In case you don’t know what deferred compensation is, it is part of one’s salary placed in a fund to be paid to an executive at a later date, usually upon retirement. It lowers the employee’s immediate tax bill by deferring the tax on the amount set aside. For some time now it has been used to attract and keep top talent. At least that is the excuse for it most often cited by the AIGs of the world. It is, of course, just another example of bloated executive compensation that once again proves Will Rogers’ depression era assessment that this is the only country on the planet that will be driven to the poor house in a limousine.
One could argue correctly that after all the money in the deferred compensation fund held by the company belongs to its employees. But it is ludicrous to contend that unless it is paid out now in the midst of continued financial hemorrhaging these employees will go elsewhere. Where? To a tropical island where they can live in luxury? Please, let them go. Maybe jail would be a more appropriate place.
The government contends that it has put strict limits on AIG’s executive pay and benefits. Bully for it. Otherwise, it would be like paying Jesse James for robbing the bank. We all know that there has been far too much of that in recent years. Some $33 billion in executive bonuses was paid out last year at a time the financial industry was beginning its free fall and it was clear that the taxpayers were going to have to save the day somehow, if possible. Does anyone doubt for a moment that obscene executive pay has played a role in the current crisis by encouraging excessive risk taking?
Recent published newspaper reports show that Standard & Poor 500 Chief Executive Officers averaged $10.5 million in overall compensation last year — 344 times the pay of the typical American worker. These same statistics show that from 1989 to 2007 compensation for the average CEO went up 167 percent as compared to about 10 percent for most workers. In addition, the comparison shows that U.S. chief corporate officers are the highest paid in the developed world.
It is everyone’s dream to make a lot of money — to build the better mousetrap and realize the benefits from it. But that is not what has been happening. That dream has been turned into a nightmare by managers of financial institutions and hedge funds who merely move money about or manipulate stock with the blessing of friendly boards of directors while creating nothing but their own wealth. The government continued, meanwhile, to pledge fealty to a deregulated free market with little oversight. The red flags have been waving out there for some time. Now that they have been forcibly brought to our attention, we should hope it is not too late to avoid the kind of pain we endured from 1929 to 1939.
That may not be possible unless we bring down to earth the sky’s-the-limit policies of compensation committees and corporate boards that are tone deaf to public relations and replace them with those who understand it is one thing to be paid well but quite another to be rewarded well beyond one’s actual worth.
(E-mail Dan K. Thomasson, former editor of the Scripps Howard News Service, at thomassondan(at)aol.com.)