Posted on March 17th, 2009 by Tim Eavenson | No Comments »
Filed under: ., Employee Benefits, Labor Law, Politics, The Financial Crisis | 
[Ed. Note: I have been looking for a way to channel my vitriol over the news that AIG wants to pay the guys who could arguably be blamed for the entire global economic meltdown $225 million in structured bonuses, and I'm hoping to do it through this post. That said, don't fault me if I start yelling. ]
I love David Greising. The Chicago Tribune and NPR business contributor seems to understand everything business, especially the stuff I don’t. This morning, he took on AIG’s bailout apologist CEO, Edward Liddy, for going soft on derivatives execs after canning 6000 Allstate employees a few years ago, employment contracts be damned.
Why, Greising asks, after pushing Allstate into a handful of class action lawsuits (two by the EEOC, even – that takes work) because he ignored the axed employees’ contracts, has the man brought in by the Bush Administration to clean up AIG dropped the broom?
Given his own history, Liddy’s explanation that his “hands are tied” because of the derivative department’s executive agreements is sad. Can you imagine the media tsunami that would follow a class-action lawsuit on behalf of AIG derivatives executives for their bonuses? It’s not even their salaries, it’s their #%*$@* bonuses! … [cough] sorry.
Honestly, it’s like Wall Street and K Street are having a “who can sound more hollow” contest.
Greising also points out that other ailing corporations, including Motorola and Continental Airlines, have worked out deals with their executives for pay cuts, bonus paybacks and the like.
And then there’s the big wrench in Liddy’s explanation – the United Auto Workers. They, too, had a contract. A few, actually. But nobody – not the government, the union or the automakers asking for tax money ever questioned whether it could be renegotiated.
And that’s as it should be.
So what’s different about AIG? How is it that, in the face of a furious public, following one of the biggest collective renegotiations in history, and with a proven executioner at the helm, this company can’t get out of paying millions in bonuses?
Is there a double standard among contracts for workers and contracts for executives? Probably. But Greising’s article proves that that can’t answer the whole question. Honestly, I think the real problem here is a denial of workplace realities.
When the auto industry was getting bailed out, one of the biggest arguments against giving them the money was that it would create a false sense of stability. The employees and executives of the Big 3 needed to understand the dire straits they were in, and government infusions would keep that from happening.
The same is clearly true at AIG. Employees and executives alike simply don’t understand how close to the edge they are. They want to pay bonuses to “retain talent”? Talent?
The department created confusing securitized investments that didn’t work. Now it’s months away from being wound down, and they’re still paying to retain talent? This is a group of people who need to feel their livelihoods are in jeopardy. That’s why the UAW renegotiated their deals. That’s why Motorola execs adjusted theirs, too.
Employment contracts are only as good as the companies that agree to them. Perhaps if AIG were suddenly small enough to fail (potentially, at least), its employees would find it in their hearts to discuss their compensation structures.
Posted on January 13th, 2009 by Chad De Groot | 1 Comment »
Filed under: ., Employee Benefits, HR Issues, Politics |
This past weekend I was in New Orleans attending the ABA Tax Section’s midyear meeting (I would have loved to provide an “on the road” update, but I refuse to pay $15 for one night of internet service in a hotel). Due to the deluge of guidance from the IRS and new legislation from Congress, the majority of the seminar focused on providing overviews of the recent changes. However, one discussion, which was appropriate for a January 2009 meeting, focused on potential benefits issues practitioners soon could be seeing coming out of the Obama Administration.
J. Mark Iwry, Of Counsel at Sullivan & Cromwell’s Washington, D.C. office, led the discussion. Mr. Iwry was clearly qualified to guide us as his impressive resume includes having been, among numerous other highly acclaimed positions, former Benefits Tax Counsel at Treasury and recently a policy adviser to Rahm Emmanuel. I’m going to focus on just two pieces of the presentation.
Executive Compensation
First, Mr. Iwry discussed the near future of executive compensation legislation. After providing the great truism, “it is easier to afflict the comfortable than to comfort the afflicted,” Mr. Iwry explained how it is likely that Congress has yet to finish punishing executives for earning money. While providing no opinion as to whether limiting executive compensation is a laudable goal, Mr. Iwry was simply making the point that it is easier for Congress to hinder the rich through policy changes than it is to make life better for those who struggle. Certainly, it is easier to garner support from their constituents for such work. Therefore, despite the recent effectiveness of the Draconian 409A requirements, more is still to come.
Ironically, around the time Mr. Iwry was talking , Barney Frank was introducing legislation to further limit executive compensation under the Emergency Economic Stabilization Act.
Automatic IRAs
Another possible upcoming change to employee benefits law under the new administration that was touched upon was the introduction of the automatic individual retirement account, or “Automatic IRA”. This idea has received much attention and commentary as of late. The theory that this arrangement can mend the disaster that is the American retirement system stems from the success of auto-enrollment provisions under 401(k)s. Studies (not cited here) show that the participation in company-provided 401(k) retirement accounts skyrockets when individuals are automatically enrolled at the time they are hired. Clearly, this is a result of our society’s tendency to be complacent.
While auto-enrollment under 401(k) accounts has been working, only around 50% of employers provide retirement savings accounts of any kind, and just a small portion of those provide for auto-enrollment. This is because many employers don’t want to deal with the inherent costs and headaches that accompany a qualified retirement plan.
The Automatic IRA would essentially be just a payroll practice. The idea is that the federal government would implore employers to simply forward on the amounts deferred from individuals’ compensation to the specified IRA, but it does not seem that the plan is to make this practice mandatory. Call me a cynic, but I don’t believe employers who aren’t already sponsoring retirement plans would want to deal with even the miniscule burden of forwarding deferred compensation to an IRA, unless the practice is made mandatory, or there is an incentive to employers for doing so.
Posted on December 18th, 2008 by Chad De Groot | No Comments »
Filed under: ., Employee Benefits |
As we approach the end of 2008, when deferred compensation plans must be brought into documentary compliance with the rules under Code Section 409A, we sometimes forget about those poor non-executives who are burdened by the new rules as well.
The National Football Post posted this interesting comment on Monday about an urgent memo that went out this week to NFL agents regarding the tax consequences (current inclusion in income + 20% excise tax) under 409A if their client’s deferred compensation arrangements were not compliant with the new rules by the end of the year.
Code Section 409A was enacted o limit executives’ control over deferred compensation by providing strict rules regarding elections and distributions under such plans. I think it’s pretty safe to say that Congress did not anticipate burdening professional athletes with the new rules, but this provides a perfect example of how wide a net 409A can cast.
