Wednesday, March 25, 2009

An AIG Executive Votes With His Feet

I figured that this would happen; no, I'm being a little dishonest. I hoped this would happen. I wrote earlier about a dream sequence I had in which the Brahmin of Wall Street just packed up and quit, leaving to Tim Geithner and his Treasury Department bureaucrats the job of cleaning up the global financial crisis without their help. By this action (and the concomitant fall of the financial system) they would show class envious Americans who value their skills and talents not at all, just how wrong they were.

In an action not far removed from this dream sequence, Jake DeSantis, Executive Vice President of AIG's Financial Products Division has quit, and his letter of resignation points to his boss's lack of support in front of Congressional lynch mobs seeking to vilify DeSantis and his fellow workers. Coming up through the commodities arm of AIG, DeSantis had no play in the parts of AIG that were bringing the company down...a key graph follows:

"The profitability of the businesses with which I was associated clearly supported my compensation. I never received any pay resulting from the credit default swaps that are now losing so much money. I did, however, like many others here, lose a significant portion of my life savings in the form of deferred compensation invested in the capital of A.I.G.-F.P. because of those losses. In this way I have personally suffered from this controversial activity — directly as well as indirectly with the rest of the taxpayers."

So a guy who did the right things, played by the rules, worked hard and then came into the failure part of the business to help save it--is now quitting. Jake DeSantis seems like a pretty good guy, and he seems like the kind of guy I want at AIG helping them get out of their own way. Instead, he'll now go to a company that isn't in trouble, and he'll help them get ever bigger and richer. C'est la vie, right?


Nathan said...

One point Mr. DeSantis is not considering. If AIG had not been rescued, they would have gone the way of Bear and Lehman. In that case he would have no bonus at all.

Is he unwilling to share in the downside of the performance of the overall firm?

The Conservative Wahoo said...

Couple of things, my good friend.

1. His bonus (and most of the other bonuses at AIG) were not performance based--they were "continuation" bonuses, payable upon completion of a certain term of service. He held up his end of the contract, so must AIG. As you say, though, if AIG had gone belly up, he wouldn't have a bonus. But that didn't happen (yet). The government intervened because of the critical and singular role AIG played in underwriting the financial markets...therein RAISING the requirement for top-notch, well compensated people.
2. As for sharing in the downside of the performance of the overall firm, again, the bonus was not performance based. That said, the obliteration of a significant portion of his past compensation (stock options not yet vested) seems to me to come under the heading of sharing in the downside, no?

Anonymous said...

This reminds me of a Churchill quote -- "grave yards are filled with indespensible people" There are plenty of other qualified people, and they will likely work for less. The bailed out company will do just fine...

..... said...

Charles De Gaulle.
With apologies to Inigo Montoya, "you keep using that quote, but I do not think who you think said it is who said it."

Nathan said...

Whether it is a continuation bonus or performance bonus it doesn't matter. Nor does the value of his 401K holdings.

The fact of the matter is, without federal aid AIG would be in chapter, and his contract would be worthless.

Think anyone from Bear or Lehman had their employment contracts honored after they went belly-up?

In chapter the secured debt-holders get theirs first...

Ask the labor unions how their contracts held up when the steel companies went chapter in the late 90's early 00's.

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