Friday, March 20, 2009

Return the bonuses

This week saw a disturbing trend continue as we were once again confronted with extraordinary abuses of the public trust by companies rewarding employees with excessive compensation while receiving billions in taxpayer assistance. In response, yesterday the House passed H.R. 1586 to hold companies, including American International Group (AIG), accountable for the bonuses that were paid to their executives.

In a move that just leaves us all shaking our heads, after receiving more than $170 billion in taxpayer funds, AIG paid $165 million in retention payments to executives – most of whom have mismanaged their company into near bankruptcy. The top recipient received more than $6.4 million and more than 73 of these executives were paid over $1 million in retention bonuses. After receiving their retention bonuses, at least eleven recipients left the company.
There is plenty of blame to go around for how this happened. Congress should have restricted this behavior in law. The Treasury should have seen the contracts before they were approved. But let’s take a moment to marvel at the sheer audacity of AIG. After receiving $170 billion in taxpayer dollars, they appear to have learned no lessons and continued to succumb to the greed that led to their failure in the first place.

There is an argument that we should have anticipated their callous disregard for the taxpayer, but it is hard to imagine this level of arrogance.

The bill passed in response to the actions of AIG does the following:

HR 1586 recovers the bulk of these bonuses by applying a separate income tax rate of 90 percent to bonuses received by individuals from companies which have received at least $5 billion from TARP. It would also apply to bonuses paid by Fannie Mae and Freddie Mac.

  1. For this purpose, bonuses will be defined as any retention payment, incentive payment, or other bonus which is in addition to regular employee compensation payable on a periodic basis
  2. The special tax rate only applies to individuals and families with income (including bonuses) in excess of $250,000
  3. The bill applies to bonuses paid after December 31, 2008
  4. Any individual who received a bonus from a qualifying company who repays the bonus during the same tax year it was given would not be subject to the 90 percent rate.
You can read the full bill text here >>>