How odious must executive pay abuses become, people kept wondering, before Congress and corporate boards recoil in horror? When will a company devise a compensation scheme so laughably grasping, so utterly counter to the idea of a fair day's pay for a fair day's work, that the jig will finally be up?
Ladies and gentlemen, we appear to have a winner. The people at AIG's financial products unit did such a great job crippling the economy that they're getting $165 million in bonuses.
Their job was to sell insurance on toxic mortgage bonds.
Homebuyers were the first victim. Lulled by the illusion of AIG policies paying off upon defaults or foreclosures, investors threw billions at people who never should have gotten a mortgage.
Bond buyers were the second victim. AIG, we now know, had nothing close to the reserves necessary to honor the policies.
AIG shareholders were the third victim. As billions in mortgage-insurance claims flooded in, shareholder equity got wiped out and AIG stock went to zero.
Taxpayers were the fourth victim. No company - not even Citigroup or Bank of America - received more bailout money from Congress and the Federal Reserve than AIG. So far, it's $170 billion. That's $1,300 per American household.
As a reward, 400 AIG employees are splitting the $165 million bonus pool. Seven executives in the financial products division get bonuses of more than $3 million each, according to news reports. Seventy-three AIG workers get at least $1 million apiece, New York Attorney General Andrew Cuomo announced yesterday.
That's not all. AIG has pledged another $1 billion in bonuses and "retention" payments to employees in all divisions, news organizations report. The company is 80 percent owned by the U.S. government.
But it's under contract! the government and AIG executives protest. We're legally obligated to pay this money.
That's a good point. The most outrageous aspect of executive pay, as it has metastasized over the past three decades, is its perfect legality. The situation has gotten so absurd that maybe the people who create pay packages will realize that "legal" and "appropriate" are not the same thing.
Numerous CEOs have made a great show of giving up 2008 bonuses. Citigroup boss Vikram Pandit refused his and sharply cut the bonus pool for employees, too. Other Wall Street honchos did the same. Mayo Shattuck, head of Baltimore's Constellation Energy, said refusing his 2008 bonus is a "modest and firm signal that I'll do all that I can do to help steer this great company back to health."
How nice. Why in the blazes are these people owed 2008 bonuses in the first place? Last year was the worst in decades. Constellation almost went bankrupt. Without government help, Citigroup and AIG would be bankrupt.
Compensation consultants have said for a quarter-century that lavish pay aligns CEOs' interests with that of shareholders. Executives pocketing millions during the worst stock crash since the Depression has falsified that proposition forever.
Broc Romanek, a former Securities and Exchange Commission lawyer and editor of TheCorporateCounsel.net, ridicules the notion that AIG and the Treasury Department couldn't revisit the promised bonuses.
"Whoever were the lawyers who analyzed it for the government and for AIG didn't do anybody any favors if they didn't present alternatives," he says. "Companies do it every day. It's Business 101."
Permanent reform requires enriching executives only if companies do well over the long term. CEOs should have to keep shares and options even after they retire instead of milking corporations for a couple of years and then pitching them into crisis.
More immediately, shareholders can rise up in rage. In a little-known codicil to the bailout legislation, almost every financial company getting bailout money must include a "say on pay" on this year's proxy ballots, says Scott Fenn, managing director for policy at PROXY Governance, which advises pension and mutual funds. So corporate owners get to vote up or down on fat-cat compensation.
Shareholders, you know what to do. Maybe 2009 will mark the popping of the last bubble - executive pay.