Since the AIG bonus brouhaha broke over the weekend, the hobbled insurance giant has essentially been claiming it had to make the payments because not doing so could have created a “defalt event,” potentially exposing taxpayers to losses of hundreds of billions down the road.
That may or may not be a legitimate argument (most experts seem to be saying “not”). But it’s worth noting that just a few short years ago, there was a case in which AIG wasn’t quite so fastidious about honoring bonus agreements with its employees.
Earlier today, we highlighted some excerpts from a 2004 deposition given by Joseph Cassano, who was then the head of AIG’s financial products unit — the division whose massive losses on credit default swaps would later bring the company to its knees.
But the story of the underlying case, as summarized at the time by a trade publication, is just as revealing as Cassano’s testimony.
AIG was being sued for breach of contract by a former employee, Rob Feilbogen. Feilbogen claimed that when the unit he worked for, AIG Trading, was put under the control of Cassano’s AIG Financial Products, he was informed in writing by an AIGFP executive that the company’s previous guarantee to pay him a bonus of $1.3 million would no longer be operative. Feilbogen said he was told he would still be eligible for a bonus, but the $1.3 million figure would not be guaranteed.
In a letter to Cassano, Feilbogen insisted on receiving his $1.3 million bonus. In response, Cassano played hardball, telling Feilbogen he could agree to the new deal, or resign. Feilbogen continued to resist, and was soon informed by an AIGFP lawyer that his employment had been terminated “as a result of his decision to resign.”
The lawsuit was eventually settled out of court. But the case suggests that whatever bonus agreement Feilbogen had, or claimed he had, with AIG, Cassano and his colleagues weren’t inclined to treat it with much respect.
Of course, in all likelihood, there are legal differences between Feilbogen’s bonus agreement, and the ones that AIG is now claiming it has no choice but to honor. It may very well be that AIG is legally bound more tightly to honor these more recent deals, or that it could expose itself to greater losses by not doing so.
Still, the Feilbogen saga offers, at the very least an ironic counterpoint to the claims AIG is making today, and a reminder that the firm hasn’t always seen pre-existing bonus agreements as sacrosanct.