"We cannot attract and retain the best and brightest talent to lead and staff the AIG businesses, which are now being operated principally on behalf of the American taxpayers, if employees believe their compensation is subject to continued and arbitrary adjustment by the U.S. Treasury," pleaded Edward Liddy, chairman of AIG. Putting aside the
irony of Liddy's decision to brand AIG's staff "the best and the brightest" (somewhere, David Halberstam is laughing, or possibly crying, or possibly just dead), there's precedent for this sort of thing. Eric Rauchway
reminds us that Jesse Jones, head of the Reconstruction Finance Corporation during the New Deal, faced rather similar dilemmas: Overpaid executives, populist outrage, and a tension between retaining corporate talent and protecting the political consensus in favor of the New Deal. He went with the politics.
Jesse Jones often toyed with the salaries of corporate management, especially if they were, in his mind, “over-paid” Wall Streeters. Jones and Roosevelt knew that RFC loans always had the potential of political trouble—stirring up liberal Democrats and progressive Republicans who were blaming businessmen for getting the country into such an economic mess. Salary reductions were one way of showing that RFC, even while it was pouring billions into private business, was not enriching corporate management. Amendments to the RFC Act in 1933 required Jones to certify the appropriateness of the salaries paid by every corporation accepting loans and investment money. Jones devised a declining scale of salary reductions. Corporate management receiving annual salaries of $150,000 or more would be cut to $60,000, $100,000 or more to $50,000, and other reductions accordingly.
One of the arguments we're
hearing in favor of paying the AIG bonuses is that AIG will be less effective at using taxpayer money to unwind it bets if the company needs to be restaffed. That might be true. But it's not the end of the story. AIG is going to be a helluva lot less effective at unwinding its bets if it can't get any more taxpayer money with which to pay them. Choosing between a poorly staffed AIG and an insolvent AIG may not be a fun choice to make, but it doesn't seem a particularly hard one, either.
"We cannot attract and retain the best and brightest talent to lead and staff the AIG businesses, which are now being operated principally on behalf of the American taxpayers, if employees believe their compensation is subject to continued and arbitrary adjustment by the U.S. Treasury," pleaded Edward Liddy, chairman of AIG. Putting aside the irony of Liddy's decision to brand AIG's staff "the best and the brightest" (somewhere, David Halberstam is laughing, or possibly crying, or possibly just dead), there's precedent for this sort of thing. Eric Rauchway reminds us that Jesse Jones, head of the Reconstruction Finance Corporation during the New Deal, faced rather similar dilemmas: Overpaid executives, populist outrage, and a tension between retaining corporate talent and protecting the political consensus in favor of the New Deal. He went with the politics.
