If you are looking for a reason to junk these contracts, the obvious one is that the company that made them is effectively bankrupt, only being kept alive through massive transfusions of taxpayer money.

There's some notion that AIG couldn't be allowed to actually go into bankruptcy, and thus has to be kept in active status at huge expense (and thus as a collateral effect forcing taxpayers to make big bonus payments to the scumbags who ruined the world economy). I have no opinion on this, though I'm dubious of taking the word of the likes of Tim Geithner about it.

People call AIG and its ilk zombie firms. I think a better metaphor would be to call them vampire firms: they are undead and are sucking the lifeblood out of the living part of the economy. Where's the Slayer when you need her?

Like treaties and pie crusts, contracts are made to be broken. There is no "sanctity" involved. Business routinely renegotiate or ignore contracts as they see fit.

The prospect of litigation is just a stick to keep everyone at the bargaining table. I spend a fair amount of time examining multiparty contracts when our professional services projects go seriously wrong. The parties are always looking at numerous factors many of which do not show up in the contract at all (e.g. other relationships that may be impacted, embarrassment that may occur if the failure is made public, etc.) Everybody's starting position is the maximalist "I'm completely right and you owe me everything in the contract plus a bunch of stuff I added for negotiating purposes".

Clearly the AIG bonus contracts were written by people who expected the train to run off the cliff and wanted the strongest possible negotiating position.

How and why they were approved in that form is a good starting question if you wanted to void them. But in reality there is ample evidence of financial irregularities suggestive of fraud. The feds certainly could could have launched a grand jury and gotten an injunction preventing AIG from paying those bonuses pending the results of the criminal investigation. That then, becomes the new starting point in the negotiation regardless of what the contract says.

"I hope the people at AIGFP listen to their CEO and return their bonuses."

But should they return their retention bonuses if they *weren't* the ones who had made those crippling credit default swaps? Liddy in his testimony said several times that there were a lot of other non-swap businesses in the unit which weren't responsible for the meltdown, which the remaining employees, *retained by this bonus*, are now working to unwind and effectively work themselves out of a job and, at the rate this is going, potentially never employable again. Is it fair to ask *these people* to return their payments - the only reason for which they are still here! - their only reward for unwinding the unit in an orderly fashion? As Liddy said, those who were responsible have been fired. Those who are left (and now being vilified and threatened) are the ones who are loyal, the one who stuck around, the ones working themselves to a standstill to unwind the company.

The irony is that I think most FP people now wish AIG *had* gone into bankruptcy. The liquidators would (unlike Congress and the American people) value their expertise and most probably give them guaranteed payments anyway, but without being made sacrificial lambs.

How about if these jerks' money is no good... publish a list of their names... suppose that none of them can get a table at the fanciest restaurants, no service at various shops, plane reservations are denied, none of them can even get a friggin' haircut. Treat them like lepers.

This girl can dream, too.

These used to be called severence packages. They weren't particularly controversial, except for who was chosen as "key personnel" and who was left behind, The next time someone wants to do an orderly reorganization or shut down, it will be much more difficult because of AIG and even more because of irresponsible politicians and journalists who would rather sell outrage than truth.

This is past surreal. We're losing sight of the big picture here. I'm not saying that the bonuses are OK, but it's just a flea bite while I'm being mugged. The bonuses are just a symptom of the larger problems. Obviously these bonus contracts were negotiated fully aware that the whole thing was going to come crashing down at any moment. All these zombie banks and companies are going down, and everybody leaving is taking everything that isn't nailed down - pretty normal behavior for a failing enterprise. We need to get these zombies under control by starting the bankruptcy process. If this is "nationalizing" a company then we do it MILLIONS of times a year in the US already - so let's get on with it.

"Too big to fail" is utter BS. All these zombies banks and AIG need to do what all broke companies do - go bankrupt. The FDIC has already had 14 or so banks go under this year. Why not these?

How everyone has drunk the "prop them up with TRILLIONS of dollars and they will suddenly be OK" cool aid is what's abnormal. This is NOT normal business, it's a soft landing for the people that created chaos at best (and a HARD landing for the rest of us), and highway robbery at worst. It will not create jobs, or fix the real estate market, or restore the stock market. Everyone acts as if this fix will magically transport us back in time to 2006 which is patently absurd and basically denying the reality that we are undergoing a fundamental transformative process driven by some basic truths (the lower/middle class is BROKE after thirty years of Reaganomics) and we will only get out of it by going forward to some new economy not back to the old one.

As much as I dislike the contracts, they are not the reason for AIG's collapse (maybe the people who received the bonuses are, but that's different.) Your report says the there was a single standard contract, but Liddy said that all the contracts were unique. Am I missing something?

The amount is payable unless they are fired with good cause, resign without good reason or fail to meet performance standards.

Wait a minute -- they get the retention bonuses even if they resign?!

Tar and feather time.

Tentakles is right. It is fairly easy to break contracts. Contractual damages in court are vegetarian--you get the amount specified in the contract, but not much else, no matter how heinous the breach. (Insurance contracts are a special case--most states gin up the damages for insurers that refuse to pay in bad faith.)

If you offer somebody a choice between half a promised bonus on the one hand, and unemployment and a lawsuit on the other, they are likely to go for the former.

What really enforces most contracts is the goodwill cost of breaching them. Since it seems to be sharks all around, I'm not sure that there is that much goodwill.

Try criminal and civil prosecutions for fraud.

Thank you, Hilzoy. This is exactly right. We had more than enough of disregard of the law with the previous administration. We don't have to, and shouldn't, like the fact that these folks are getting this money. But let's not lose our heads over this and do something that, if the shoe were on the other foot or were circumstances and people different, we would rightfully denounce.

my question is, why didn't Paulson or Bernacke or whomever (back in the Bush admin) make them change this contract as a condition of accepting taxpayer bailout? Or, was this type of thing the reason they wanted to ram it down our throats really quickly to begin with?

Just MORE SHOCK DOCTRINE at work.

Tell'em that it's BAD, REALLY BAD!!

Tell'em it's an EMERGENCY!!!

Tell'em if they don't ACT NOW there will be NO TOMORROW!!

Tell'em WE HAVE A PLAN & THEY MUST FOLLOW IT.

Read the book. Naomi Klein is the author & it's been on the shelf for a year, easy.

As I read the posts and subsequent comments on this AIG mess, it doesn't appear to me that anyone commenting has a clue what a retention bonus is. As a recepient of one in the past (my company was bought by another company), it a means of ensuring that employees not leave a company while their services are still needed, i.e. We'll pay you not to leave until we decide if we still want you at some future point X. When X arrives and you are still working there, you collect the money. It is to compensate you for risk you take for not leaving when it appears you/your company may not bee around. It delays your departure.

Severence pay is what you get when that day arrives, if you're lucky and is quite different.

Performance bonuses speak for themselves.

Not sure I agree that those at AIG should have received retention bonuses, but don't confuse the conversation by referring to them as though they were performance related.

Aside from anything else, AIG employees would not bring these claims to a jury of their peers. They would have to file in the Court of Federal Claims in a civil suit with no jury, just a judge. And the thing is, this would be a government taking. The DOJ would lose the case having spent lots of money on litigation. Case law in the CofFC pretty clearly supports this. Tax all you want, but if these contracts were really written this tightly, they *do* have to be paid, and it would cost more not to pay them. The real question is why a company would be a party to such a contract with no out clause.

Severence pay is what you get when that day arrives, if you're lucky and is quite different.
- ciesel

I think the biggest difference between these AIG retention bonuses and "severence pay" is that when they were drawn, AIG expected to shut down at least this division, and probably worried about the survival of the company. Many severance packages, however, are offered early, but made conditional on staying until the end.

While the distinction you draw is valid, I would argue that "severance" had already become too closely associated with the term "golden parachute", and it is quite possible that AIG chose to call these retention bonuses, regardless of which their actual intentions or expectations were.

Kate - And 450 of these bonuses were for people working in England. I'm not sure how many were Brits as opposed to Americans working abroad, but I suspect little would change as the result of either a law suit or a 99% tax.

Cronies dealing with cronies. Bailouts with no strings attached.

Remember when the government "immunized" the telecoms? Why can't they just immunize AIG from lawsuits from these employees?

Plus, I think contracts can be voided as "against public interest" and I betcha any jury would find these were against public interest.

There is something called "failure of consideration" in contracts. One side gets all the benefit, or the benefits are grossly uneven, the contract is voidable.

If these guys could LEAVE and still the retention bonus, that, to me, is failure of consideration plain and simple.