It's hard to make sense of huge AIG bonuses

Bonuses, bonuses, bonuses.

At a time when people everywhere are just trying to hang onto their jobs, the revelations about millions of dollars in bonuses being paid to people at American International Group are a little tough to swallow.

AIG is the Wall Street heavyweight getting $170 billion in taxpayer dollars to stay afloat because it got heavily involved in the unregulated business of issuing insurance for mortgage-backed securities and other debt held by banks worldwide.

When the housing bubble burst, AIG was suddenly on the hook for billions of dollars in claims it couldn't pay — now a $1.6 trillion black hole.

Analysts argue that letting AIG go down the tubes would make all that insurance worthless and force banks worldwide to eat those losses — deepening the recession, or worse.

With 74 million customers, from schoolteachers with retirement funds to car owners with insurance policies, and operations in 130 countries, AIG is one of the troubled financial giants often characterized as "too big to fail." That's one of the main reasons taxpayers now own 80 percent of the company.

So it's little wonder a firestorm erupted over the payment of at least $165 million in bonuses to 400 AIG employees, many of whom worked for the troubled securities trading division that brought the company to its knees. Their bonuses ranged from $1,000 to $6.5 million.

To be fair, these were retention bonuses, designed to keep people with the company who were critical to unwinding the complex financial instruments that buried AIG, while it tried to dig out. Had they jumped ship, the AIG situation might be even worse and the cost to taxpayers even greater.

David Lindsay, who has a doctorate in accounting and teaches at California State University, Stanislaus, said it's important to remember that there's a distinction between performance bonuses and retention bonuses. One rewards work for meeting certain goals, while the other keeps key people in place when they might be better off bailing — such as in the case of AIG or a business bankruptcy.

"Bonuses have been used to encourage certain kinds of behaviors in all kinds of businesses, not just on Wall Street." Lindsay said. "A bonus structure is pervasive in most businesses, especially sales organizations. The highest level of management sets goals for their subordinates and the bonus structure encourages them to reach those goals."

As for retention bonuses, Lindsay said the question critics have to ask is what would happen without them.

Even so, it's understandable why people are frustrated when they see millions of their tax dollars going to bonuses, especially when the amount of money these individuals are raking in is more than most people earn in a decade or two or more.

It's a level of excess that most people only read about, until AIG and other teetering financial institutions needed propping up. But with public money comes public scrutiny, which can shine a pretty bright light on how the other half lives.

That light won't reveal anything that hasn't long been part of the culture of Wall Street and American business.

Jason Gordo, co-founder of the Modesto-based financial planning and services firm Valley Wealth Inc., said businesses want the best people and are willing to pay top dollar for them.

The problem with bonuses, Gordo said, is that people are focused only on the bottom line and what it means for them financially. If that means looking the other way when there are questionable business dealings, so be it.

"It's, 'Get the deal done,' " Gordo said. "There's no corporate governance, no oversight. It's salesmanship instead of stewardship."

This shouldn't come as a big surprise to Northern San Joaquin Valley residents. As the epicenter of the nation's foreclosure crisis, there were a lot of questionable deals made back in the real estate market's heyday. Homes were sold to folks who clearly couldn't afford them, people lied about their incomes and virtually everybody looked the other way — wink, nod.

What it all comes down to is greed, and the level of greed we're being exposed to these days is pretty staggering. Is anybody really worth a multimillion- dollar bonus?

In the valley, just having a job, being able to feed your family, and making those mortgage payments is bonus enough. In this economic climate, that should be good enough for the folks at AIG or any other business taxpayers are being asked to bail out.

Bee business editor David W. Hill can be reached at dhill@modbee.com or 578-2336.