Alumni at AIG defend company amid public outrage
University alumni employed by the American International Group (AIG) found themselves in a political and media firestorm last week when the company was thrust into the national spotlight. The company revealed that it had paid $165 million in bonuses to its employees following its receipt of more than $170 billion in taxpayer bailout funding.
Both Congress and the public raged at the news, leading the House to impose a 90 percent tax on bonuses of companies receiving over $5 billion dollars of bailout funds. But the stark disconnect between the public perception of AIG and the reality of the company has failed to trickle down to the minds of many Americans, Princeton alumni currently employed by AIG say.
AIG economist David Garlow ’66 said he thinks there are two AIGs: the “very small section” responsible for the company’s bad press and economic woes and the much larger portion which played no role in the company’s financial decisions.
As in the case of Enron, he explained, AIG employees are being blamed for problems that a small fraction at the helm of the company had caused.
"From the perspective of a person who’s working at AIG, it’s a little disheartening to be tarred by the same brush that other people are being tarred," Garlow said. "It's not rocket science: We sell insurance. Our operations have been running smoothly and are 'plain vanilla' ... Some of the stuff we do is more exotic but it doesn't involve taking many risks."
One Princeton alumnus who is a junior-level employee at AIG's corporate headquarters blamed the sale of high risk derivatives by the company's primarily London-based Financial Products unit for the company's tough financial straits. She spoke on the condition of anonymity for fear of losing her job in the pending "third round of layoffs."
"The ninety percent do everything we're supposed to do," she said. "It’s a very small unit of the company that caused the liquidity [problem] … The rest of the company was solid and profitable."
She explained that though she did not work in the Financial Products unit, her colleagues who conducted research for the derivatives unit have all been laid off.
"Of course they've all now lost their jobs," she said. "I don't know if they got any bonuses or not because I don't know where they are anymore."
Following political and public outcry, AIG Chief Executive Officer Edward Liddy said at a March 18 Congressional hearing that he had asked employees who earned more than $100,000 per year to return half the value of their bonuses.
The anonymous employee said that though she received a bonus, she did not intend to return it because her salary is less than $100,000.
Garlow, who declined to say whether he'd received a bonus, defended the merit of the additional funds, explaining that bonuses motivate employees to work hard. Even when employees sacrificed vacation days in order to work, he added, companies often withhold bonuses when it does not perform well.
"Companies profits go up and down wildly," Garlow said. "[Bonuses] give a margin of flexibility that you don’t have, in say, an automobile factory."Despite a general feeling of malaise among his colleagues, he added, they continue to work as before the scandal.
Jeremy Dongilli '99, however, said that he did not receive a bonus and, like much of the public, was angry when he heard about AIG's decision to redistribute the government's stimulus funds.
Dongilli is a director at a holding company of AIG that was formally renamed only a few weeks ago as AIU Holdings. Though he is formally still employed under AIG, as he has been for the past four years, Dongilli said he expects to separate from the company within the next two months when AIU Holdings is put on the market.
Dongilli noted that the recession is a complex situation that many Americans, including himself, don't fully understand. Concepts like credit default swaps, mortgage-backed securities and the subprime mortgage crisis that played a role in the recession are difficult to grasp, he said, but most people could easily understand what handing out bonuses meant.
"People react in this angry mob mentality when the average person is losing their job and trying to get by on minimum wage," Dongilli said. "I don’t think that it’s entirely out of whack for Americans to react that way."
The media frenzy surrounding AIG has sparked a outrage across the country, and AIG corporate security sent out an e-mail to employees two weeks ago that said that they should not display their identification badges in public or wear clothing with AIG labels in public, Dongilli said.
The anonymous employee even said she now encounters hostility in social situations, adding that even when she explains that most AIG employees only sold insurance and were not to blame for company policies, people remain unconvinced. She no longer mentions that she works for AIG in public, she said.
Many people's justified anger was augmented by slanted coverage on the part of major news media, she said. "They do a lot of reporting that is not strictly balanced," she noted, citing the example of a $440,000 conference for which, she says, AIG received a disproportionate amount of criticism.
"There were 100 or 200 people attending. Of those, there were 13 AIG people who ran the conference, but nobody reported that part," she explained, adding that the company's vendors, not AIG, paid for the retreat.
She received these numbers in a memo from AIG's communications office to all of its employees, she said, but The Washington Post reported that "70 of the company's top performers" attended the conference.
"Many of us are just average people," Dongilli said. "The anger has been generally directed towards AIG on the whole and that translates to any AIG employee."
Living in New York, though, has helped him avoid some of the anger targeted at AIG employees, he said.
"Being in New York, people are probably more in tune or understanding of what’s going on, but we have offices in Kansas and Scranton where people are probably not up to speed," he said. "I have heard stories of people who have felt the wrath, but I have a strong family and solid group of friends from Princeton, and a lot us are lawyers and Wall Street bankers in the same boat together."
Several Princeton alumni who are senior-level executives at AIG declined to comment for this article.Government response
AIG employees were critical, however, of the government's strong-fisted response to the company's actions.
Dongilli said the government's attempt to levy a ninety percent tax on bonuses in response to public outrage was unwarranted, merely "political posturing." He added that he did not think the Senate would pass the tax, which the House approved on March 19.
"They're just beefing up their chests and saying, 'Look what we’ve done for you,' " Dongilli said. "I find it a little bit troubling because I think it’s Congress being as reactionary as the people and they have an obligation to sit down and think through the anger."
Garlow, though, said he thought imposing the 90 percent tax was a misuse of the tax code.
"By imposing the tax after the bonuses, it smacks of being ex-post facto legislation," he said. "It does seem like it’s an attempt to punish a very small group of individuals. If someone has committed a crime, we use regular legislation."
The tax will only create more problems, Dongilli said.
"It’s frightening because it suggests that if Congress doesn’t like what you’re doing, they can tax you out," he noted, adding that not everyone at AIG was to blame for the allocation of funds.
Garlow added that he believed the tax would only hurt government efforts in the long run. He pointed to Treasury Secretary Timothy Geithner's recent call for organizations to join in the effort to clean up toxic assets as an example of how this could harm governmental productivity.
"Firms are going to be saying it’s just not worth it to go out and respond to these government programs, because we get penalized," Garlow said.
Some Princeton students said they are now questioning the value of a job or internship with the formerly competitve insurance giant in the wake of the controversy.
Alex von Lockner '09, an economics major and co-president of the Tiger Investments Club, said that he "definitely wouldn't take a job with AIG."
"The current debacle has destroyed the integrity of the entire financial sector, leaving shadows of former giants," he said. "[AIG] may be synthetically propped up by the bailout, but they will for years be shells of their former selves."
Von Lockner added, though, that he believed the tax on the bonuses was "ridiculous" and an attempt by the Obama administration to cover its tracks, adding that it would deter individuals from seeking jobs and internships with companies like AIG.
"It is true that [Troubled Assets Relief Program (TARP)] companies should not use the funds to pay the exorbitant bonuses of their executives," he said. "Yet the invisible hand requires an extremely competitive incentive structure for top corporate brass to perform outstandingly."
Operations research and financial engineering major and finance certificate candidate Adrian Kwok '11, however, said that if he were offered an internship, he would take it.
"AIG is an insurance company that made some bad decisions, but what they do is still important and respectable," he said. "This isn't like I'm going to work for a firm that profits off poaching elephants or something."
He added, however, that he would probably not work for them long-term, and that it would take a long time before they could fix for their image.
"AIG's name is pretty synonymous for the typical American with 'douchebag,' so I probably would think twice before working full time for them," Kwok said.