AIG Bonuses

There’s been a lot of outrage lately over some $165M in total bonus compensation that was paid out to senior people at AIG, a recipient of over $100B in federal bailout money. This is silly. Anyone who’s been around floundering companies knows there’s good money to be made when they’re about to go under the waves.

The Dead Sea

The principle is simple: Once a company begins to take on serious water, employees naturally begin to look for the lifeboats. The analogy breaks down, however, in that it is the most able-bodied (i.e. the most skillful and resourceful) employees who are quickest into the boats. Quite aside from the deleterious effect of all that institutional knowledge walking out the door, there’s a substantial dead sea effect to contend with.

Troubled companies are always generous with their people. In fact, if you’re good, and don’t mind uncertainty, working for and with distressed companies can be quite lucrative.

Deserve’s got nothing to do with it

Some commentary has focused on the “unfairness” of the bonuses, on the fact that it doesn’t seem right for taxpayer money to go to the same people who placed the company in a position to need a massive taxpayer bailout. Well, maybe it isn’t fair. But that doesn’t mean it isn’t a good investment, or, more specifically, that this expenditure of 0.1% of the AIG bailout won’t allow the taxpayer to recoup more than an additional 0.1% of that bailout than if it hadn’t been made.

I say this as a skeptic of all bailouts dating back to Bear Stearns.

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