Former General Electric Co. (GE) Chief Executive Jack Welch, one of the most respected voices in American business, believes the American people should move beyond their outrage surrounding the bonuses paid to some American International Group Inc. (AIG) executives. Chances are that his advice will be ignored.
The outrage over the $165 million in bonuses to 400 employees in its Financial Products Division is still raw. Many Americans are having trouble paying their bills are sick of spending tens of billions of dollars propping up mismanaged institutions. They can't understand why anyone should get a bonus who worked at a company that needed to be rescued by taxpayers at a costs of $173 billion over the past six months. Politicians are sensitive to this new realities and are responding.
Senate Banking Committee Chairman Christopher Dodd (D-CT) suggested that the government levy a tax on the New York-based insurer to recoup the money while his Republican counterpart Chuck Grassley argued -- apparanlty only half-kiddingly -- that AIG executives should follow the examples of Japanese samurai who killed themselves rather than face dishonor. Senate Democratic leader Harry Reader also wants to recoup the bonus money through taxation.
Even the Obama administration, which argued Sunday that they too were angry at AIG but felt that they had little chooice but to pay the bonuses because they were contained in employment contracts, is heeding the calls of the villagers and their pitchforks. President Obama said yesterday that he intends to stop the bonuses from being paid because the company is in dire financial straights because of recklessness and greed. Former AIG CEO Hank Greenberg called the payouts "mind-boggling." For its part, AIG is reducing its bonus pool for this year.
Questions remain whether the government has a legal leg to stand on. Also, proposals for a punitive levy of some sort could create an awful precedent. They seem of dubious legality too. But Welch makes the point that the federal government, which owns 80 percent of AIG, needs to work together with the company issues such as executive pay.
"They can't be public critics (second guessers) of their (and our) company," Welch wrote. "Tearing the institution apart with carping will not improve our chances of getting our money back."
Jack Welch appeals for calm over AIG bonuses - good luck!