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Washington, D.C. — startwidainctext Today, Congressman Elijah E. Cummings (D-Md.), a senior member of the House Committee on Oversight and Government Reform, sent the letter below to Kenneth Feinberg, the “Compensation Czar,” regarding reported discussions between Mr. Feinberg and AIG about upcoming bonuses scheduled to be delivered to AIG’s executives and other employees. Specifically, the Congressman is urging Mr. Feinberg to express to AIG that these bonuses are unacceptable, particularly given the company’s inability to demonstrate performance that warrants any type of reward. Additionally, the Congressman is asking Mr. Feinberg to impress upon AIG that the company’s first priority should be repaying the American taxpayer, noting that language in a recent SEC filing by AIG regarding the bonuses is ‘insulting’ to the American people.
The text of the letter:
July 13, 2009
Mr. Kenneth R. Feinberg
Special Master for TARP Executive Compensation
United States Department of the Treasury
1500 Pennsylvania Avenue, N.W.
Washington, D.C. 20220
Dear Mr. Feinberg:
According to recent media reports, American International Group, Inc., (AIG) approached your office seeking approval of $2.5 million in performance-related bonuses for several dozen of the company’s high-ranking executives. These media reports also highlight the even larger compensation issues that remain unresolved at AIG, including more than $200 million in so-called retention payments scheduled to be paid in March 2010 and directed predominantly to the employees of the Financial Products (FP) unit of AIG—the same division whose transactions posed such a systemic risk to our entire economy that the U.S. government provided AIG more than $180 billion in financial assistance.
Although I recognize that all of these various bonuses were promised before your appointment to the position of Special Master of Compensation, I urge you to reiterate the views of President Obama and the American people—who are now majority shareholders of AIG—that these bonuses are excessive and therefore simply unacceptable.
Edward Liddy, Chairman and CEO of AIG, wrote in a letter to the Treasury at the time the first FP retention payments came due in March 2009 that Treasury had “asked AIG to rethink our 2008 corporate bonus proposals.” AIG’s Form 10K/A Amendment No. 1 filing with the Securities and Exchange Commission (SEC) for fiscal year 2008 – filed on April 30, 2009 – offers revealing insight into exactly how seriously AIG has taken Treasury’s request that it “rethink” its bonus proposals.
Specifically, the April 10K/A Amendment filing presents three compensation principles that AIG states “guided our actions as 2008 developed.” These three principles are:
Principle 1: Embrace evolving standards of compensation governance.
Principle 2: Bring AIG’s historic guiding principles into 2009.
Principle 3: Act, if necessary, to provide appropriate incentives to preserve value.
Having set forth these principles, AIG offers some interesting observations. For example, the firm notes that “AIG continues to face extraordinary challenges that demand focus and difficult decisions in regard to the compensation of AIG’s seniormost employees.” But, using its guiding principles, “AIG intends to face these challenges and strike the best possible balance between motivating its experienced, capable and technically proficient employees to achieve results that matter to American taxpayers and conserving scare liquidity resources.” To that end, as the firm has “faced the challenge of developing a new annual compensation framework, we have continued to be mindful of our historic compensation principles. We believe that we should continue to apply them, although we necessarily will implement these principles different than we did before.”
Verbiage like this is frankly insulting to the American people. AIG’s ONLY guiding principle—in compensation policy and in all corporate matters—should be to repay the American taxpayer. There is no metric of any kind by which AIG can be judged to be a successful firm or to have “improved” its performance; in fact, its future as a going concern is judged by many to be very much in doubt. The firm has not earned any performance-related bonus consideration, and its “historic guiding principles” have guided it straight to the largest single quarterly loss and the largest taxpayer-funded corporate bailout in history. Under no circumstances is it tolerable to think that these “historic guiding principles” should be allowed to be brought into 2009.
Against this background, I urge you to undertake a comprehensive review of all aspects of AIG’s compensation policies and to express the strongest possible disapproval of any policy that does not have as its sole focus ensuring that AIG repays to the American taxpayers every single dollar loaned to it. It is beyond comprehension that AIG should be establishing a “corporate pool for variable performance-based pay” when the firm has demonstrated nothing to warrant any bonuses, or that it should contemplate awarding “retention payments” to individuals at the very unit that drove the firm into the ground.
As you assess AIG’s proposed bonus awards, I urge you to use your position to focus AIG’s corporate policies on what should be its first and only priority: making the taxpayer whole—as Mr. Liddy himself indicated was his intention at a Congressional Hearing before the House Financial Services Committee on March 18, 2009. Mr. Liddy also told me personally in a meeting on January 15, 2009 that he hoped to return taxpayer money early. While I have not seen the company present a check to the U.S. Treasury, I continue to see the firm working to cut bonus checks to its corporate executives.
As unemployment continues to rise, it is simply unconscionable that AIG should pay out millions of dollars in bonuses to AIG executives while the taxpayers who are footing the bill struggle to stay in their homes and feed their families. Everyone else in the country has been making sacrifices during these difficult economic times; there is no reason why the executives at AIG should be exempt.
Please feel free to contact Nikki Jones in my office at 202.225.4741 to set up a time for us to further discuss this issue.
Sincerely,
Elijah E. Cummings
Member of Congress
cc: Secretary Timothy F. Geithner, U.S. Department of Treasury
