American International Group, already the recipient of over $170 billion from the US government, has come under fire in recent days for paying out $165 million in bonuses. Without government intervention AIG would have failed, and now the taxpayer money that is supposed to be used to save it, is being paid to the employees who helped put AIG on the verge of failure.
My question is: Is this the most efficient use of the funds to get AIG back on track?
The public outcry all the way up to President Obama himself has made it clear that many people feel bonuses are not the most efficient way to get the company back on track.
The general consensus is that the funds would be better spent improving and building up and stabilizing the insurance giant, not enriching its employees. At least part of the public outcry comes from the perception that taxpayer money was funneled into AIG, glanced off the CEO’s desk, and went directly into the hands of employees, without serving any real purpose other than to make already wealthy higher-ups even wealthier.
But maybe the bonus payments are serving a more important purpose; perhaps they are acting to stabilize and strengthen the company.
And this is where AIG, without anyone realizing it, may actually be adopting some sustainable business practices. The fact is AIG needs to keep some employees around to get itself out of this mess, but due to the long days, public outrage at AIG, and in some cases even death threats against employees, many employees have very little incentive to stay at AIG.
Finding new employees is a lengthy and expensive process, and time and money are two things that are working very strongly against AIG. The bonuses may provide the necessary incentive for employees to remain with the company.
If the amount spent on the bonuses is less than the company would have lost if certain employees had left the company, then perhaps the bonuses were an efficient use of the funds.
Apparently, however, AIG failed to consider the reputational impacts of paying bonuses at such a sensitive time. AIG is has been demonized in the media, and the public perception of the company is terrible.
The extremely negative reputation of AIG may prove to hinder future profitability of the company as customers will be reluctant to get involved with a company so closely associated with failure and greed.
Additionally, the decisions made at AIG are affecting more than just AIG. The unpopularity of the bonuses and the realization of how some of the bailout money is being spent will make finding support for future bailouts much more difficult. This could prove to slow the recovery of the economy as a whole, which will further harm AIG’s profitability.
While AIG’s decision to pay bonuses to increase employee retention may help them in the short run, the company’s reputation and potentially the entire economy will suffer in the long run.
Sustainable or wasteful, this is what has been done.