Some companies might find it difficult to justify $23,000 worth of spa treatments at a fancy resort for executives when times are good, let alone when bankruptcy is looming. So the outrage over AIG, Inc., spending $440,000 on a retreat for its executives while it was tapping into an $85 billion bankruptcy bailout loan from the federal government shouldn’t come as a surprise.
The retreat came to light this week at a Congressional hearing that revealed findings of an investigation into AIG’s meltdown.
Rep. Henry Waxman said the executives spent $200,000 for rooms, $150,000 for meals and $23,000 for the spa at the St. Regis Resort in Monarch Beach, CA.
Bonuses OK’d despite big losses
The $440,000 expenditure seems like a drop in the bucket compared to executive’s compensation packages which were also revealed at the hearing.
Documents from AIG show as the company’s risky investments were imploding, executives’ pay plans were altered to pay out regardless of losses.
AIG lost more than $5 billion in the last quarter of 2007. When the company’s compensation committee met in March 2008 to award bonuses, CEO Martin Sullivan urged that those losses not be considered. Including the losses in calculations would have slashed executives’ bonuses.
The board agreed to ignore the losses from the financial products division and gave Sullivan a cash bonus of more than $5 million. Sullivan also got a new compensation contract with a $15 million golden parachute.
Sullivan countered that he was mainly concerned with helping other senior executives.
The hearing also showed that AIG executives hid the full impact of its risky financial products from outside and inside auditors.
Of course, there are obvious financial management lessons to be learned by the AIG story. But what about an employee morale angle? How do employees feel when company executives are treated to multi-million dollar salaries, bonuses, and special perks? Does it hurt morale, or are these compensation packages for executives easily explained because of their responsibilities? Let us know your thoughts in the Comments Box below.
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