Thursday, March 19, 2009

Taking Out a Contract

If you’re as confused as I am about the contract that A.I.G. signed with their employees for the bonuses that have been in the news, here’s an explanation of it by law professor Steven Davidoff.

These bonuses are payable regardless of performance and are calculated at 100 percent of 2007 compensation for all employees except senior management, who receive 75 percent of 2007 compensation. The amount is payable unless they are fired with good cause, resign without good reason or fail to meet performance standards. For those hoping that these employees could now be fired, “good cause” is defined in the agreement as a very high standard. This is normal for these agreements. (…)

Similarly, failure to meet performance standards is another hard test to meet. If you could meet this latter standard, the contract provides that the employee still keeps his or her 2008 payments, just not next years. So even if the employee fails to meet performance standards this past year, they still keep the money paid this past weekend.

The contract also appears as inviolable as it states. Of course, this is not to say that it cannot be broken some other way, such as through bankruptcy, taxation or perhaps legislation.

As Bob is fond of saying — and that’s because he’s right — just because something is legal doesn’t make it right. If these people had any conscience, they would give the bonuses back and find another line of work, perhaps in the manufacturing of license plates.

HT to Hilzoy.