In a discussion about the AIG bonus issuesÂ with friends last night, I made a rather heated comment about my own bonus from my current employer.Â I said that while some in the organisation were discussing refusing their bonuses, “there is no way in the world I would be refusing my bonus”.
After the heat cooled I thought some more about that comment and about the situation in AIG.
Firstly, my own situation.Â Bonus payments are a common part of remuneration in the IT industry.Â They’re both a performance bonus (an incentive to achieve organisational goals beyond your job description) and a retention payment (used to make sure that scarce resources remain in an organisation).
My bonus is a contractual requirement, although the organisation can vary the percentage which gets paid (and presumably this year the % will be low).
Thinking back on my statement above, I think there are some scenarios where I would give up my bonus but certainly not because of guilt or pressure from anyone else.
The point isn’t about greed or charity or anything like that.Â It’s about getting what I have earned and what I do with the money being my choice.Â Pretty similar to this guy.
As a manager (admitedly, a very junior one), this letter makes me cringe.Â It’s from one of the very senior managers at AIG resigning over the bonus debacle.
From the sounds of it, this is a very effective, astute manager who is leaving AIG because of a bonus amounting to ~$700k.
What it’s hard to realise for people who don’t work in business is the scale of financial responsibilities many managers deal with.
Let’s look at the AIG example.Â It’s beenÂ reported that AIG lost $62 billion through it’s poor management of swap deals.Â That’s $62,000,000,000 an astounding figure.Â
If the letter above is to be believed, only a handful of the 400 employees had any responsibility for this.Â Let’s assume 20% to be conservative.Â So 80 people had responsibility for these losses.Â That’s $775 million per person.
So by my calculations, the bonus Jake was being paid was 0.09% of the losses each of the involved employees were responsible for.
Am I making myself clear?Â Maybe not.Â
If financial institutions are going to be successful they need to have great people.Â These people are responsible for huge amounts of money.Â The difference between having a good person in these positions and a bad one means the differerence between making and loosing hundreds of millions of dollars.
Jake admits he may be overpaid.Â I can admit that the bonus payments seem like obsurd figures to those who are struggling to live on $30k a year.Â But if AIG is going to survive (and the US government has made a huge investment to make this happen) it desperately needs good people at the top.
What good leader is going to leave another role to take Jake’s job now?Â And more importantly, what does the unavoidable continuation of the loss in leadership at AIG mean for the organisation?Â Obama, other politicians and the American public need to remember that there’s more than one way for an organisation to fail.