NYT: AIG Executive Exodus Greenberg's Fault

I missed the New York Times editorial blasting the folly of punitive compensation limits, but an article today manages to vilify, if in an admiring way, former AIG head Hank Greenberg for taking advantage of the ill-conceived policy.The Times' Mary Williams Walsh, in a piece called "Ex-AIG Chief Is Back, Luring Talent From Rescued Firm," writes:

While America generally loves stories of entrepreneurs making a comeback, Mr. Greenberg's success may be at the expense of taxpayers. People who work in the industry say that if he is already luring AIG's people, he may soon be siphoning off its business and, therefore, its means to repay its debt to the government.

And whose fault will this be, exactly?

Flush from his legal victories and highly publicized reconciliation with AIG, Greenberg is working at a comeback by building C.V. Starr & Company, the independent concern named for AIG's brilliant founder (whose story is fascinatingly told in Ron Shelp's "Fallen Giant: The Amazing Story of Hank Greenberg and the History of AIG").

Why this should be regarded as a vaguely sinister development is a good question, especially as the story focuses on an activity by no means unique to Greenberg. He is merely one beneficiary among others of a government policy. If Greenberg were out of the picture, what would stop other companies from "poaching" executives, as the story characterizes the voluntary departure of executives for greener pastures?

Greenberg's lawyer is quoted in the story claiming that AIG's direct global competitors have, in fact, hired far more former AIG personnel than has C.V. Starr. He declined to provide a number or comment on the quality of the executives destined for C.V. Starr and other companies, but the claim is plausible, to say the least.

Opinions differ as to the real nature of the compensation standards for TARP recipient companies by the Treasury Department's special master Kenneth R. Feinberg. The effects of master's work may be marginal, in the end, but his actions are clearly meant to appease an angry public by skewering favored scapegoats - heavily compensated financial services executives. The emotional appeal is obvious - no concept of fairness could justify the differences in pay made by the richest and poorest of Americans who work hard. But who said life is fair? Feinberg and his masters - Treasury Secretary Timothy Geithner and President Obama, in the ascending pecking order - have chosen what is "fair" - or at least emotionally satisfying to the masses - in lieu of what will work.

It should be obvious that executives with options will leave a company where their compensation prospects are limited, and Master Feinberg has consistently expressed his awareness of the danger. The NYT story today quotes "Treasury officials" saying that Feinberg "was aware that if he set pay standards that were too stringent, he could further harm AIG by driving away its executives."

If the Times' reporter's thesis is correct, then the pay standards are indeed destructively stringent. So why doesn't the reporter blame Feinberg or his superiors for driving executives into the arms of Greenberg and others, and thereby harming the public interest in the TARP companies?

To the Times' credit, it permits its token conservative columnist to explore the "Fatal Conceit" of believing one can violate the laws of human motivation in the interest of fairness or, to be more accurate, vengeful scape-goating.If Greenberg were out of the picture, what would stop other companies from "poaching" executives, as the story characterizes the voluntary departure of executives for greener pastures?

Anthony O'Donnell has covered technology in the insurance industry since 2000, when he joined the editorial staff of Insurance & Technology. As an editor and reporter for I&T and the InformationWeek Financial Services of TechWeb he has written on all areas of information ... View Full Bio