Enforceability of AIG Contracts Giving Employees Millions of Dollars After Government Bailout
The recent uproar over the bonuses being paid to AIG executives, in the exact division that caused the company’s financial crisis, presents an interesting legal question. AIG claims that it had no choice to pay the bonuses because it was bound to do so under its contracts with those employees. The question is whether those agreements would remain enforceable given the unexpected circumstances of a financial collapse leading to a government bailout, with the government owning 80% of the company.
Employment agreements in the financial community may often guarantee bonuses and other compensation for employees. Whether such agreements would stand up even where those very same employees led to the collapse of the company would certainly present an interesting legal issue. AIG, however, has clearly chosen not to address that question, in favor of simply paying out the contract. Without actually seeing the agreements, of course, the question remains purely academic.
More suspect, is AIG’s claim that its employees needed to be assured that compensation was not linked to the U.S. Treasury “to attract and retain the best and the brightest talent to lead and staff the AIG businesses...” These “retention bonuses” seem hardly appropriate to retain executives that led the company to the brink of disaster.
