AIG Pay Problems Grow More Ridiculous

The WSJ presents yet more evidence this morning that the true reason for AIG's failure was its executives' propensity to spend all day crafting their pay packages rather than focusing on running an insurance conglomerate profitably. Five high-ranking executives threatened to quit last week if their pay is cut significantly. The charge is being led by AIG's general counsel, Anastasia Kelly, who informed her other co-conspirators of how they can "protect themselves" against losing what amounts to some golden-parachute payments that the executives are "entitled" to collect.

The new pay fracas revolves around a severance plan that was put in place before the bailouts, where certain executives are entitled to severance benefits if they resign for "good reason" which includes significant cuts in their annual base salary or target bonus. First of all, what compensation committee in their right mind would agree to this type of a provision? If your pay is about to be cut, it generally means that you are doing a lousy job. So, why would a company agree to let you quit and then agree to pay you a huge severance? Yet more evidence that boards are too conflicted and not operating in the best interest of shareholders.

Worried that this opportunity to collect severance won't be around next year, the execs thought it only fair to use it as a negotiating tactic to keep their current pay packages in place. I know that Mr. Geithner and Mr. Bernanke don't enjoy negotiating and have pretty much let AIG dictate their own bailout terms. But maybe the Pay Czar is a better negotiator. Here's my advice on how to resolve some of these pay standoffs. Anyone threatening to quit over comp at AIG should be immediately fired for cause for neglecting their professional duties and devoting too much time to personal matters at work. I'm sure the company would have no trouble finding another general counsel. There are plenty of highly skilled, out of work lawyers floating around who would love the job.