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Argument: AIG is obligated by contract with employees to give bonuses

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Wayne Outten, Managing Partner Outten & Golden LLP. "Opinion: In Defense Of The AIG Bonuses". MSNBC. March 23, 2009 - The key point is that AIG contractually committed itself a year ago to make these retention payments in March 2009 to induce select employees at various levels to keep working for the rest of 2008 (despite uncertainties in the company and opportunities elsewhere), because the company considered them essential to helping solve its financial mess. And it worked—as AIG requested, most of them stayed for the retention period, serving their company through 2008, despite the tumult all around them. Notably, these were not discretionary or performance-based payments.

By the way, AIG’s retention arrangement is not unusual. Employers enter into such arrangements all the time, especially in times of uncertainty, such as when the company may be sold or is in financial trouble. In fact, in such circumstances, a company might be negligent if it did not make arrangements to retain key employees.

In any event, such arrangements are lawful and enforceable as a matter of basic contract law. This is true even though some of the payment amounts are very high—higher than most people can imagine earning. Although contracts can be voidable under certain circumstances, no responsible commentator has suggested that these particular contracts contain any legal defect that would allow AIG to walk away from its obligations to these employees. In fact, numerous government and private lawyers who scrutinized these contracts concluded that they were legitimate, enforceable obligations of AIG to its employees. Neither governmental ire nor public furor should override the terms of a lawful contract to compensate an employee for services rendered—whether or not the employee contributed to the employer’s problems or got high compensation—because a deal is a deal.


Lawrence Summers, Obama’s top economic adviser: "The easy thing would be to just say...off with their heads, violate the contracts. But you have to think about the consequences of breaking contracts for the overall system of law, for the overall financial system."[1]

"We are a country of law. There are contracts. The government cannot just abrogate contracts."[2]


Liddy, AIG's chief executive, wrote in a letter Saturday to Treasury Secretary Timothy Geithner - "Quite frankly, our hands are tied."[3]


"AIG’s $165 Million Bonuses: Is It Legal to Take Them Back?". Wall Street Journal. March 19, 2009. - President Obama has ordered Treasury Secretary Timothy Geithner to find a way to claw those bonuses back, and maybe even take them out of AIG’s next bailout payment. Can they do that? The Constitution says the government can’t interfere in private contracts–and the AIG bonus agreements were struck in early 2008, when the company wasn’t under government control.

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