PAP has not learnt the lessons from AIG

The ruling party has not learnt the lessons from AIG

At the launch of this year’s Singapore Kindness Month on Saturday, Minister in the Prime Minister’s Office Lim Boon Heng said that the word “bonus” has become a dirty word, with its meaning highly misunderstood. He said that “companies’ bonuses are part and parcel of the overall wage package“, that “we now operate differently from the past“, and hence we should not “get overexcited whenever we see the word ‘bonus’ being used“. (ST, “Bonus need not be a dirty word”, 05 April 2009)

It is surprising that Mr Lim Boon Heng should use Kindness Month as an opportunity to speak about executive compensation and the uproar that it has engendered in recent days. At first glance I simply cannot see any connection between the two, unless Mr Lim is trying to hint to us that we should be kind to CEOs who get paid fat bonuses, as well as politicians and Ministers who get paid multi-million dollar salaries.

Mr Lim said the uproar over bonuses paid by troubled firms like AIG was because the American public perceived these to have come from Government bailouts, but that “people should not mistake a bonus as somebody getting something extra and undeserved and out of line with the current economic situation“.

Mr Lim Boon Heng has gotten his case wrong. The outcry over the mega bonuses paid by AIG was not simply due to the fact that AIG had been bailed out by American taxpayers’ money, but also due to the fact that managers and executives at AIG had, for the past several years, indulged in highly speculative and risky activity that brought down the whole company and threatened the entire financial system when the US housing market collapsed. The traders and executives at AIG essentially turned the company into an enormous hedge fund that placed highly leveraged bets on exotic instruments connected to subprime mortgages, credit default swaps, and other highly risky instruments that imploded when the US housing bubble burst. The immense anger and frustration over the fat bonuses paid to AIG executives, which run into the hundreds of millions of dollars, is due to the perception that these executives simply don’t deserve to be enriched for causing such extensive damage to the financial system and yet get compensated using taxpayers’ dollars.

In this case, it was sheer greed that brought down AIG, and there is a very strong case to be made that AIG’s executives did indeed obtain compensation that was undeserved and out of line. Interestingly, this is the exact same criticism that has been leveled at Ministerial salaries in Singapore.

We do not need Mr Lim Boon Heng to remind us that bonuses are part and parcel of the overall wage package, and neither will I begrudge anyone getting adequately paid for outstanding work or service rendered. However, the issue here is whether the compensation paid is just, especially when taxpayers’ dollars are involved, and it should not be swept under the carpet merely by appealing to the notion that “we now operate differently from the past”. It would be abhorrent to cover up wrongdoing or unjust compensation merely by proclaiming that times are different now.

The issue of fair compensation has cropped up recently in Singapore as well, with an outcry over two CDC officers allegedly receiving up to 8 months worth of bonuses at a time when the local economy is spiraling downwards and job losses are mounting. To add salt to injury, the People’s Association (PA), which manages the staff at all 5 CDCs, as well as Northwest District Mayor Dr Teo Ho Pin, who is in charge of the CDC where those two officers allegedly came from, refused to provide any concrete information on the case. Dr Teo even said that it was “not unreasonable for CDC staff to receive 8 months of bonuses“. (See here.)

Sheer greed and the lack of transparency and accountability to stakeholders was what brought down the insurance giant AIG. From the remarks made by Mr Lim Boon Heng and Dr Teo Ho Pin, it seems that the ruling party has not learnt the lessons from AIG, but seems ever intent on perpetuating those conditions that resulted in AIG’s collapse, for their own selfish ends.

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