Mendoza School of Business

Locals opine about AIG, give their thoughts on bonuses, legislation

Published: March 21, 2009 / Author: Mendoza College

It was the spark that ignited the indignation of a nation — bonuses totaling $165 million paid out to executives of AIG.

Politicians jumped on their high horses to express outrage and hastily pushed through legislation that would impose a 90 percent tax on the bonuses.

So we asked three local business experts their opinion on the bonuses and the Band-Aid legislation passed by the House of Representatives.

Patrick Murphy, professor of marketing and C.R. Smith co-director of Notre Dame’s Institute for Ethical Business Worldwide

1. Do you believe those who received the retention payments should be forced to return them? Why or why not?

Retention payments are typical in ordinary times at a number of financial firms. However, this is an extraordinary time for both AIG and the country. Thus, companies like AIG and Merrill Lynch that have received bailout money by the government should not be giving out bonuses. These firms may have certain legal responsibilities, but the ethical and honorable thing to do would be to voluntarily return the payments. Providing bonuses with no strings attached appears to be an oversight by both the upper management at these companies as well as some in government. Ideally, the current outrage will lead to a more transparent system in the future.

2. What do you think about the idea of a vote on legislation to tax away 90 percent of the extra pay for executives at AIG and many other bailed-out firms?

The legislation is certainly one way to make certain that these individuals only benefit minimally from the bonuses. However, government cannot legislate morality. One would hope that both the individuals involved who are receiving the bonuses and their management should understand that this behavior is undermining the trust in business by the general population. Business executives are fond of using the phrase of being “accountable for one’s actions.” This appears to be an instance where accountability was not practiced at these firms. I am cautiously optimistic that such behavior will change for the better in the future given that most businesses do try to do the right thing.

3. What else would you like to add about the whole situation?

As a person who teaches ethics in business, I remind my students that the “tone at the top of organizations” sends a clear message about the ethical standards in an organization. It appears that there was a real failure of leadership in these financial firms. What appears to be needed in the future is for boards of directors and upper management to demonstrate by example and demand that their firms will be more ethically driven. If not, I am afraid that government will impose even further legislation and penalties as we move forward.



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