Writing in The Washington Post, Liddy says he shares the public's outrage over the $165 million in bonuses awarded to executives at the troubled company, but that there was no legal reason they could be stopped. "Make no mistake, had I been chief executive at the time, I would never have approved the retention contracts that were put in place more than a year ago," he writes. "It was distasteful to have to make these payments."
AIG is arguing that it would cost twice as much to fight the bonuses than to pay them. But economics are not the point here. Politics is.
Liddy, who gets $1 per year in salary, has already shown a remarkable political tin ear. Last year, AIG outraged members of Congress when it held a corporate junket at a swanky Arizona rescort soon after one of its bailouts from the government. After vowing that it would never happen again, news of other AIG corporate shindigs emerged.
The publicity surrounding these parties made AIG a poster child for corporate excess at a time when the economy is facing its biggest challenge since the Great Depression. When the bonus controversy emerged, the public's anger at AIG went into overdrive.
Members of Congress respond to the whims of the public. They are pounding their chests about the AIG bonuses, vowing to tax them or recoup them somehow. Fortune magazine even advanced a legally dubious theory that a judge could rule the payouts were "unconscionable." According to corporate governance expert Charles Elson, the odds of that happening are slim
"They are awful but they are not unconscionable," said Elson, Edgar S. Woolard Jr. chair or the John L. Weinberg Center for Corporate Governance at the University of Delaware's Lerner College of Business & Economics at the University of Delaware, in an interview. "There is no way you can get [the money] back."
The pay policies at AIG are not unique. Many people on Wall Street may have gotten bonuses they did not deserve. So have CEOs. For example, Mike Ovitz got a $900 million payout from Walt Disney Co. (DIS). Stan O'Neal got a $160 million "retirement" payment for running Merrill Lynch into the ground. The list of undeserved payments is endless.
But they got their money.
It's understandable why Rep. Barney Frank (D-MA) is threatening to subpoena the names of the bonus recipients and wants the contracts broken. But it's also grandstanding.
Proving that a executive did not deserve a bonus is difficult. In AIG's case, the government ownership complicates the matter. As Paul Hodgson, executive pay expert at the Corporate Library, points out the government would have to sue itself.
"They are written in such way to make it virtually impossible for the employee not to get them," he said in an interview.