The Advisors' Blog

– Broc Romanek, CompensationStandards.com

Personally, I’ve come to despise AIG and think that company has risen above the fray to be the poster child of this credit crunch. It’s the “Enron” of this half of the decade. It’s not just that AIG already has stuck out it’s hand for $150 billion of taxpayer money – or even the eye-popping junkets that its employees recently enjoyed.

It’s the continued poor “tone at the top” of senior management, who claim that the company is in trouble due to the government’s onerous terms. There hasn’t been any acceptance of accountability for the mess they’re in (although the compensation of the top 70 officers has been further reined in under new bailout terms with the government, primarily a limit on golden parachutes and bonus pool size has been frozen). And I don’t think I’m alone – see this recent Floyd Norris’ column about the arrogance of AIG. And you should have heard Lou Dobbs last night, whoa boy.

Anyways, check out this recent Washington Post article. Now, AIG has quietly disclosed that it’s paying $503 million of deferred compensation out early in an effort to retain 6200 employees (14 deferred compensation program were terminated; payments will be made in early ’09). My gut reaction was that this will not sit well with the general public (even though the purpose of deferred compensation typically is to defer taxes, not to retain employees) – and that many of these employees will simply take the money and run since there are no strings attached (and they may not want to continue to sully their reputation by staying at AIG if they have any chance of leaving this new “Enron”).

One helpful consultant explains what’s really going on. Most deferrals are paid upon termination of employment. So, if you were worried about the company cratering, you would be motivated to quit to secure your deferred compensation balance ASAP. So AIG’s actions likely are an attempt to stop good employees from leaving. That makes sense (although I don’t think it will work – I still think AIG employees that will take the money and run).

Another consulting friend raises this potential question that someone might ask: Were the deferred monies earned as a result of incentives based on “excessive risk” that has led to the current situation? If so, should some – or all – of that money be clawed back before it is paid out under the Treasury’s agreement with AIG? This is said without intimate familiarity with AIG, it’s plans or the agreement with Treasury – maybe the deferred money is not entirely derivived from incentives (an unlikely event).

It will be interesting to see how the AIG saga continues to play out – because I doubt this is the end of it…

Note that these 14 deferred compensation plans are not related to last month’s agreement with New York Attorney General Andrew Cuomo to not distribute $600 million from other deferred-compensation and bonus pools that AIG maintains.