Sat
Mar
14
2009
demands from the Obama administration...
The U.S. Treasury owns over 70% of AIG now.
The government is also in control of most the economy. This is central state planning.
Troubled US insurance giant AIG says it has agreed to demands from the Obama administration to restructure its bonus payments to staff.
Bonuses for top executives are to be sharply cut in 2009, AIG’s Chairman Edward Liddy wrote in a letter to US Treasury Secretary Timothy Geithner.
Bonus payments are an essential ingredient for free market enterprises. Taking away bonus packages removes the largest part of executive compensation. The role of incentive compensation besides the fact there exists an “incentive effect hypothesis” is not only to provide an attractive payment for running a company well which is often larger than the base salary but it serves as incentive to not cheat the company and other stakeholders.
By having part ownership in a company you are married to the success of that company and willing to do things in the company’s best interest in a free market.
Obeying central government dictates such as Obama’s demands does not serve to support a healthy economy but serves only the narrow interests of central government planners.
Therefore, by having a Treasury department support an organization that should be bankrupt and out of business leaves a company that will continue to perform inefficiently and draining resources from other productive endeavors.
AIG would be out of business which is the free market answer. The company no longer exists therefore the former executives receive no more compensation for running a company out of business. In other words, all things being equal, these executives are being rewarded for performing poorly by remaining in a company.
But now its even worse off. There is no incentive, no compensation , and no liability for improving performance.
Its simply amazing how the U.S. can keep going in the direction of state run fascism.
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