Legal News

The AIG Bonus Furor, Take II: A Ride Through the Webosphere

By Ashby Jones

The AIG bonus furor has everyone, it seems, thinking of ways to get the money back. For now, the Obama administration seems not-so-inclined to take the hard-line legal route, opting perhaps instead to ensure that taxpayers recoup the cost of the bonuses and, going forward, putting AIG executive compensation on a shorter leash. Click here for today’s WSJ story; here for the NYT’s take; here for Monday’s LB post on the legal challenges facing the administration.

But that certainly hasn’t stopped others from dreaming up ways to get the money back and others from exacting a little revenge on the company and its bonus beneficiaries. The LA Times has a nice roundup today. Some of our favorites, courtesy of the LAT:

Rob Cox at Breakingviews.com:

As the 80% owner of AIG, the government should try to force the company into “naming and shaming” the bonus recipients. Better yet, give them a choice. AIG Financial Products employees who forgo bonuses until certain taxpayer-friendly performance hurdles are met will not see their names in lights. Or maybe if they decided to contribute more than 50% of their bonus to qualified charities they might be spared public humiliation.

Felix Salmon at Portfolio:

Right now, even Cuomo hasn’t seen the contracts which AIG is convinced are so ironclad. And it might just be the case that AIG’s contractual obligation to make the bonus payments is a bit like an underwater homeowner’s contractual obligation to make his mortgage payments. If AIG simply didn’t pay the bonuses, would the employees of the financial products arm really fancy their chances in court were they to sue to receive them?

Aaron Zalinsky, articles editor of the Yale Law Journal, on the Huffington Post:

Treasury Secretary Tim Geithner should direct the Commissioner of Internal Revenue to challenge the AIG bonuses as unreasonable compensation under the Internal Revenue Code. Finding the AIG bonuses to be unreasonable compensation would render them nondeductible for federal tax purposes, and would strengthen potential shareholder derivative suits to recapture The Great AIG Giveaway.

Finally, for a provocative contrarian take, check out Andrew Ross Sorkin’s piece in Tuesday’s NYT:

So here is a sobering thought: Maybe we have to swallow hard and pay up, partly for our own good. I can hear the howls already, so let me explain. . . . If you think this economy is a mess now, imagine what it would look like if the business community started to worry that the government would start abrogating contracts left and right.

Full post as published by Law Blog - WSJ.com on March 17, 2009 (boomark / email).