Bonus Recoupment
As a result of extraordinary abuses of the public trust by companies rewarding employees with excessive compensation while receiving billions in taxpayer assistance, on March 19 the House passed legislation (HR 1586) to hold companies, including American International Group (AIG), accountable for the bonuses that were paid to their executives. After receiving more than $170 billion in taxpayer funds, AIG paid $165 million in retention payments to executives – most of whom have mismanaged their company into near bankruptcy. The top recipient received more than $6.4 million and more than 73 of these executives were paid over $1 million in retention bonuses. After receiving their retention bonuses, at least eleven recipients left the company.
No taxpayer funds should be used to pay bonuses or other unjustified compensation to AIG executives whose irresponsible risk-taking brought our financial system to the brink of collapse.
- HR 1586 will recover the bulk of these bonuses by applying a separate income tax rate of 90 percent to bonuses received by individuals from companies which have received at least $5 billion from TARP. It would also apply to bonuses paid by Fannie Mae and Freddie Mac.
- For this purpose, bonuses will be defined as any retention payment, incentive payment, or other bonus which is in addition to regular employee compensation payable on a periodic basis
- The special tax rate only applies to individuals and families with income (including bonuses) in excess of $250,000
- The bill applies to bonuses paid after December 31, 2008
- Any individual who received a bonus from a qualifying company who repays the bonus during the same tax year it was given would not be subject to the 90 percent rate
This week, Congress held hearings demanding answers from AIG on steps the company is taking to repay taxpayers. Next week, there will be congressional action to prohibit the abuse of retention bonuses by companies receiving capital infusions from Treasury. The Judiciary Committee has reported a bill to authorize the Attorney General to recover excessive compensation from these companies. The AIG situation underscores the urgency and the need for overall financial regulatory reform so we don’t find ourselves in this position again. Congress and the Administration are working together to that end.