AIG Bailout Recently, the American

AIG Bailout Recently, the American International Group (AIG), a global insurance and financial services organization, accepted billions of dollars from United States Government in order to remain solvent and in operation. After receiving this money, the organization decided to pay over $160 million in bonuses. Discuss the ethical problems associated with this decision. Could in-group favoritism play a role in this decision? If you were the CEO, what decision would you have made? There are many different perspectives in which this issue could be examined from.

One such perspective is that there is a "market value" for CEO's and their compensation should be equal to what their value to their organizations would be in the market. However, these are obviously a subjective rate and open to a wide variety of interpretations. On one hand, if the CEO was able to successfully lead the organization through a time of crisis in which the company was on the verge of failure, and then an extraordinary bonus could be justified; from this perspective.

Internally, inside the organization the CEO might have been seen as a "hero" that negotiated the deal that saved the bank. Thus there would definitely be some in-group favoritism toward the CEO. However, in accepting the tax payers money to stay solvent could also be seen as a company failure in which being in this position itself could be seen as a lack of leadership. Therefore, no bonus would be justified.

Furthermore, from the tax payer's perspective, there would be absolutely no justification for a failing bank to pay their CEO some enormous sum of money that was borrowed from the tax payers. This can certainly be deemed as an unethical and basically greedy act by the company. So internally the CEO could be a hero and externally the CEO is definitely the bad guy. The failure of the banks should be viewed as more of a system of economics however.

One of the primary factors has been argued to be the entanglement of the banks' balance sheets that can be traced back to the dismantling of the Glass-Steagall Act (Lopes, 2010). President Clinton passed regulations that reformed the essence of the way banks can do business (Lal, 2010). These changes allowed banks to use their depositors money to invest in risky investments; also known as speculation. They had a range of new products to try to hedge their risks.

One of these products was known as a derivative and AIG was the leader of the derivative business. Therefore, there was a systematic failure in the free market economy and AIG was at the centre. It is easy to put all the blame on AIG, however it should be shared equally with the regulators and the rules of the free market. From the CEO's perspective, if I was the CEO, I would not have given myself the bonus; at least until all of the public's money was repaid.

Obviously the CEO has a self-serving bias towards their own compensation and it is possible that they actually performed amazingly to keep the bank afloat. Yet a bonus is still a subjective measure and being paid.