President of the Service Employees International Union (SEIU), Andy Stern, has sent a critical and scornful letter to multiple financial services firms regarding their decisions to issue bonuses tied to inflated profits on investments that ultimately turned out to be worthless. The companies, which included American International Group (AIG), Citigroup, Morgan Stanley, and JP Morgan Chase, were called upon to either pay back the bonuses immediately or be prepared to face a slew of lawsuits.
The SEIU’s pension fund, known as the SEIU Master Trust, wants the firms’ boards of directors to review more than $5 billion in bonuses and stock option awards that were given to their companies’ top five executives since 2005. In addition, the pension fund is demanding the companies overhaul their executive compensation practices.
“The collective choices of top executives to reward themselves despite their failure to deliver a profit on their investments negatively impacted our pension fund and left our economy in shambles,” said SEIU’s Stern in an April 20, 2009 article by Bloomberg. “It’s as if these guys got a windfall payoff for betting the family’s savings on the wrong horse.”
Compensation issues. Leading the pack is financially troubled AIG, which has been bailed out by the U.S. government multiple times and received more than $185 billion in funds. Despite the taxpayer-funded rescue, as well as a $62 billion fourth-quarter loss, the insurer turned over $165 million in executive bonuses in 2008.
Meanwhile, pension funds investing in AIG and in other firms that awarded over the-top bonuses to executives while their companies struggled financially have lost billions of dollars.
In March of 2009, Congress created legislation in response to the news of AIG’s bonuses. The legislation would establish a 90% tax on bonuses at any company receiving $5 billion in government aid. At the time in question the SEIU Master Trust held investments in 29 financial services firms that received a letter from Stern.
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