AIG Bonus Contract Terms Outed

The notorious AIG bonus contracts are back in the news. The company now reportedly says the express contract terms limit the company’s obligation to pay bonuses. The reported clause authorizes the company to reduce payments to employees earning outside income by the amount of that income. For bonus payments the company is making today, this clause authorizes it to reduce aggregate amounts by $21 million, from $67 million to $46 million.

Beginning exactly one year ago, amid all the public wrangling over the terms of these contracts, the company persistently asserted they were iron-clad agreements obligating it to make full payment. Supporters invoked nebulous assertions about the sanctity of contracts.

On the other side, amid a political firestorm, President Obama told his Treasury Department to “pursue every single legal avenue” to abrogate or limit the company’s payment obligations. Members of Congress joined that chorus, some making hysterical threats to confiscate the payments by punishing excise taxes.

At that time, in a post on this blog that became a New York Times op-ed piece, I identified numerous grounds to question the company’s assertion and mediate the presidential and congressional hysteria, emphasizing that no one could determine the company’s rights or employees duties “without reading the contracts.” I imagined examples of possible clauses that could limit the company’s payment duties, specifically any right to terminate an employee for cause.

Finally, the company appears to have read the contracts and identified a clause that does limit the company’s payment duties. It could have been helpful to make that disclosure a year ago.  It could even have been helpful as recently as last month, when the company made additional bonus payments without mentioning this clause.   (See my blog post here.)

Perhaps the facts have changed, with employees now generating outside income subject to the clause, while none had earned outside income before.  Or, perhaps, the company has decided it really does need to look at the contracts to see what its legal obligations really are.  If so, the saga may not be over.  It would need to review payments made to employees previously to determine whether any outside income they generated should have been deducted.

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