The Corner

Management by Headline II

A couple of months ago, when legislation to limit banker bonuses arose in response to AIG’s awarding $165MM in annual bonuses, I posed what I thought was a reductio ad absurdum question:

Somebody needs to explain to our president that total cash comp = salary + bonus. It’s pretty hard to find a good number for AIG’s total annual cash payroll expense, but their total headcount of 116,000 as of 12/31/08 is in the current 10K. If we assume (conservatively) total average loaded comp per person of $50K, this is about $5.8 billion per year of aggregate headcount cost for rough figuring.

$165 million is less than 3% of this number. Why isn’t everyone outraged every 10 days at this amount of money going out the door to employees — because it is labeled “salary”? Suppose AIG eliminated this bonus entirely, but raised salaries 3%, would everybody feel better?

Apparently, this is just what is now happening. Outstanding.

My guess is that this is just another step in the re-emergence of a tiered financial system.

Jim Manzi is CEO of Applied Predictive Technologies (APT), an applied artificial intelligence software company.


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