Kenneth R. Feinberg, the paid adviser of the Obama administration at the time of the AIG bailout, approved a request made by the company. The granted request consisted of $4 million, a long-term compensation package that incorporated substantial stock options, then valued at around $3 million with an extra incentive award of $1 million. This entire package was placed over a base salary of $450,000 for top AIG employees in the financial product department.
Feinberg’s argument for granting the request was so that the long-term package would become comparable to the packages that were previously granted to the other top executives at AIG because long-term compensation had been absent and employees were planning on leaving the firm. Feinberg followed up by saying that this compensation would contribute to the success of AIG in the long term, which would enable the company to repay taxpayers. Despite this, much of the public was outraged over the decision, and whether Feinberg’s decision was appropriate can be judged based on whether or not AIG’s non-collapse was beneficial to taxpayers today. Though the exact return values of the company towards taxpayers cannot be estimated, the current executive organization is not beneficial, with previous AIG CEO Hank Greenberg only now paying a fine of $ 9 million due to fraudulent transactions (Gigot, 2017). However, the state of New York has spent much more on the case than the fine can cover, and as such, the CEO continues to add to the spent taxpayer funds. On the other hand, AIG is no longer financially unstable and has slow but continuous growth. As such, it can be argued from the company’s perspective that Feinberg made an appropriate decision with the granted request.
The individual-organizational exchange relationship is built around four factors, which are the organization and individual, and the contributions and the demands. The demands from the side of the organization include organizational goals, job tasks, and departmental objectives. The demands from the side of an individual employee include the ability to meet psychological, security, and physical needs. The contributions from the side of the organization offer company status, income, and other benefits. The contributions from the side of the individual include the potential for development, employee knowledge, skills, and abilities (Wang et al., 2019). During the early stages of the AIG crisis, the employees were no longer incentivized to stay with the company at its collapse as they feared that their demands may no longer be met.
Additionally, with the downward trajectory of the company, they likely thought that the company would no longer be able to pay their income or benefits. Some employees were on a one-dollar-a-year salary due to the situation at the company. However, to continue to see the contributions of individual employees, AIG promised substantial benefits for employees that stayed with the company. The payments were often of large sums, between $6 and $1 million. However, this payout became an even more detrimental attribute in the collapse of the firm and with urging from the Treasury, the CEO of AIG at the time requested the return of the benefits (George, 2018). Certain employees returned the bonuses while others didn’t. Essentially, AIG was unable to meet the primary demands of the individual at the company by not being able to pay their income or benefits. In turn, their need for security was also not met.
The debate on excessive salaries is incredibly complex and varied, and while CEOs of companies and athletes both make significantly more annually than many other career paths, they do not do so through similar models. I would consider CEO salaries, bonuses, retention packages, and other compensation much more harmful to society in the long term. A perfect environment to observe the damage such excessive expenses cause is the economy during the pandemic. For instance, just this year, Norwegian Cruise Lines have seen a net loss of $4 billion, which resulted in the cutting of 20 percent of their workforce.
Despite this, Frank Del Rio, the CEO of Norwegian Cruise Lines, had his pay doubled and brought up to $36.4 million (Shoulberg, 2021). Paycom, a software company, netted only $144 million in 2021 but created an incentive-plan salary for CEO Chad Richison that is worth $211 million. Richison’s salary is an all-or-nothing contract that depends on his ability to increase the stock value of the company. Essentially, these paychecks appear as an incentive to keep these CEOs at the company, or maybe even board directors being driven by CEOs to set these salaries that high in the first place. Unlike athletes, it is unclear if the talent or skills of these CEOs is worth so much money. In the long run, these large investments are too risky, especially for employees that will be fired and without financial security due to the mistakes of corporate executives.
A significant amount of time has passed since AIG was granted the request for pay increases for executives within the company, as such, it will now be possible to observe if the payout had the desired effect. The goal of the bailout consisted of pulling AIG out of instability and providing the company an option to continue to grow to pay back taxpayer money. Currently, AIG has $500 billion in assets and steadily growing stock values (Root, 2019). Essentially, the company has managed to move from instability to moderate success over the years. However, the amount of taxpayer money spent on AIG and their current standing in the field of insurers is incomparable and their contributions to investment in social welfare are unsatisfactory. In my opinion, granting the request for excessive payouts for the executives at AIG is unjustified.
References
George, H. (2018). Former AIG Financial Product Staffers Seek Bonuses They Say They Were Promised. Insurance Journal. Web.
Gigot, P. (2017). Hank Greenberg’s Vindication. Wall Street Journal. Web.
Root, A. (2019). The AIG Bailout Ended the Financial Crisis 10 Years Ago. Now, Analysts Like the Stock. Barrons.
Shoulberg, W. (2021). Why Excessive CEO Salaries Are Much Worse Than Excessive Sports Salaries. Forbes.
Wang, T., Long, L., & Zhang, Y. (2019). A Social Exchange Perspective of Employee–Organization Relationships and Employee Unethical Pro-organizational Behavior: The Moderating Role of Individual Moral Identity. Journal of Business Ethics, 159, 473–489. Web.