By Marie Cocco
With due deference to George Orwell, all contracts are equal. But some contracts are more equal than others.
Contracts entered into by the hotshots at American International Group for $165 million in bonuses, signed just months before their web of financial cunning unraveled, are inviolate. Contracts entered into by shop-floor workers at auto plants must be renegotiated, so that the taxpayers who bail out the industry don’t coddle supposedly overpaid union members.
Contracts that secured “retention” bonuses for the same wizards who engineered the flimsy financial products that helped bring down the world economy went to 73 individuals who received $1 million or more—with the top honcho getting $6.4 million. Contracts that secured retiree health benefits for autoworkers with creation of a special trust are being rewritten so that carmakers can use their own cut-rate stocks, not cash, to help fund their obligation to elderly people who once worked on assembly lines.
Contracts that were crafted at AIG early in 2008—a few months before taxpayers sent their first installment of bailout money to the insatiable insurance giant—must stand. The deals guaranteed that some bonus recipients would lock in as much money as they had received in 2007, before the company’s downward spiral.
Contracts agreed to by the United Auto Workers in 2007 trimmed wages and created the controversial trust for retiree health benefits that allowed the automakers to effectively remove some costs of the promised benefits from their own balance sheets. That contract does not stand.
As just renegotiated by Ford—which didn’t take federal bailout money—and the UAW, workers gave up cost-of-living adjustments, two years of “bonuses” they’d been promised instead of wage hikes, vacation days, break time and other benefits. Rules are to be changed so that workers can stay on the job more than eight hours in variable shifts, without being paid overtime.
UAW President Ron Gettelfinger told Congress in December that workers and retirees both were ready “to make further sacrifices” to ensure the industry’s viability in the wake of the credit crisis—a crisis caused in part by AIG’s exotic financial instruments. “We are willing to do our part,” Gettelfinger told the Senate Banking Committee.
AIG chief Edward Liddy told a House subcommittee Wednesday that though he runs a company now 80 percent owned by the taxpayers, it still must operate as a business that takes account of the “cold realities” of competition for customers, revenue and, yes, employees. Because of this and “certain legal obligations,” the big bonus payouts went into the pockets of some of the people who messed up the credit markets so badly that average Americans now have trouble getting car loans and auto dealers struggle to keep operating.
AIG has thus far received $170 billion in taxpayer money. General Motors, the car company considered to be in the deepest trouble, got $13.4 billion. GM is currently in negotiations with the UAW that are likely to result in more concessions from the union.
Larry Summers, the chief White House economic adviser, said on Sunday that AIG’s bonuses had to go through because “there are contracts. The government cannot just abrogate contracts.” Summers made the comments to ABC News three days after President Barack Obama learned of the bonus payments but uttered not a word publicly about them.
Now the White House and Congress are ablaze with indignation and vow to try to recoup every penny.
New York Attorney General Andrew Cuomo, quicker and more sure-footed than the lethargic Obama administration, got an accounting of how the millions were doled out. It shows, among other things, that 11 of those who received “retention” bonuses of $1 million or more—including an employee who pocketed $4.6 million—no longer work at the firm. The top seven bonus recipients received more than $4 million each.
The top-tier wage for production workers at UAW plants is about $28 an hour. New hires are paid $14 an hour.
Cuomo conveyed the preliminary results of his AIG probe in a letter to Barney Frank, chairman of the House Financial Services Committee. “Something is deeply wrong with this outcome,” Cuomo wrote.
Marie Cocco’s e-mail address is mariecocco(at)washpost.com.
© 2009, Washington Post Writers Group