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AIG to Buy Loyalty

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New retention plan to double salaries of selected senior employees.

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Note to Congress: Market forces haven't been completely repealed – at least not yet.

Nevertheless, you can be sure some members of Congress will yowl about AIG's (AIG) plan to make large retention payments to key employees. This isn't AIG's typical stupidity, which includes spending $440,000 on a retreat at the St. Regis Monarch Beach Resort in Southern California after pocketing an $85 million taxpayer-backed bailout - it's a smart move.

Some retention payments will double -- or more -- the salaries of selected senior managers, Bloomberg News reports.

Some of the company's 130 top executives will receive more than $500,000 to stick with AIG through 2009. Lower-paid managers also will receive cash awards to stay with the company, but the number and amount hasn't been determined.

AIG says it will be sure that taxpayer money isn't used for bonuses for the top 60 managers. And the others? Does Congress propose that the lower ranks scatter and be replaced with naifs, ninnies and nutcases because they're cheap?

Most managers will receive the first of 2 installments by the end of December. The retention payments will be in addition to year-end bonuses typically paid in March. AIG disclosed its retention plan in a September filing, but didn't state the amount most participants would receive. You can bet this will spark charges of "Cover-up!"

The coming flap over AIG's retention bonuses will underscore the basic problem with federal bailouts and the ongoing split between New York and Washington.

Constitutional authority and competence aside, Congress feels entitled to micro-manage companies receiving Federal money. Those concerns with their hands out should have seen this coming.

Some bright member of Congress is sure to ask: Where exactly are these hotshot AIG executives going in a recession? Most executives would probably have a tough time finding a new job, but Congress doesn't understand that top management talent is as rare as top sports or entertainment talent. Like sluggers, quarterbacks or box-office draws, attracting and retaining talented managers requires cash on the barrelhead.

That's competition, a concept Congress has yet to master. The executives in line to receive AIG's retention bonuses know the company and the industry. Now, all they've got to do is perform.

Let's hope AIG's top executives are good at what they do, or at least better than what appears to be their clunk-headed public-relations department.
No positions in stocks mentioned.
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