ContractsProf Blog

Editor: Myanna Dellinger
University of South Dakota School of Law

Monday, March 16, 2009

From the Populist Outrage File: Blame it on the Contracts

Considerable populist outrage is being directed towards AIG, which is planning to pay around $120 million in bonuses to employees.  Some of these employees were "executives in the same business unit that brought the company to the brink of collapse last year."  Good use of bailout money?  AIG and the Treasury say that the firm has no choice:

Word of the bonuses last week stirred such deep consternation inside the Obama administration that Treasury Secretary Timothy F. Geithner told the firm they were unacceptable and demanded they be renegotiated, a senior administration official said. But the bonuses will go forward because lawyers said the firm was contractually obligated to pay them.

Renegotiation of union contracts is possible (indeed, union concessions are expected in this economy).  Why are executive contracts iron clad?

[Meredith R. Miller]

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It is hard to imagine that the executives in the business that bankrupt AIG had the authority to bet the company on their own. It is hard to understand how they did not breach their employment agreements with AIG. In fact - since this activity was going on for awhile, AIG should ask for the return of previous years bonuses from these executives. No company gives employees this kind of power.

Posted by: Gavin Craig | Mar 16, 2009 10:10:55 AM

As I understand it, the union contracts are being re-negotiated for future compensation; they are not being asked to return compensation that has already been paid.

Posted by: Jason | Mar 16, 2009 2:25:21 PM

I do not buy the story they are selling. I find it incredible that AIG's executive employment agreements do not have a breach, liquidated damages, or a force majeure provision. I am positive that AIG would learn from Disney's shareholder derivative suit; binding employment agreements that costs the company millions of dollars for poor work are unacceptable. Actually, since AIG has our taxpayer money, can we bring asharehold derivative suit? I believe the directors have breached their duty and failed to exercise good business judgment.

Sharmil McKee
Business Attorney

Posted by: sharmil mckee | Mar 17, 2009 3:47:46 PM

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