(Solution Download) 1 If a company performs poorly is it ethical for

1. If a company performs poorly, is it ethical for its employees to receive a performance bonus? Who wins and who loses if they do?
2. When, if ever, is it ethical for a company to ask its employees to give back part of a bonus they have already been paid?
3. What are the ethical risks, if any, of making incentive pay a large share of employees' total compensation? How should a company balance or reduce these risks?

Disastrous trades made by the financial-products division of American International Group (AIG) nearly caused the insurance giant to go out of business in 2008, until the U.S. government moved in with money to keep the company afloat. With public funds invested in this private business, citizens were infuriated when they learned that AIG would pay its financial-products employees retention bonuses totaling $168 million in 2009 and again when the company announced $195 million would be paid in retention bonuses in 2010. Under pressure from the Obama administration's
"pay czar" Kenneth Feinberg, AIG asked employees in the financial-products group if they would be willing to take a cut in the amount of their 2010 bonuses in exchange for being paid ahead of schedule. In addition, the company asked the employees to give back some of the bonuses they had received a year earlier.
Most of the employees-over 95 percent-agreed, and some of them offered to take a bigger cut than the 10 percent requested or to pay back some of the bonus money not repaid by others (including individuals who had left the company).
This situation unfolded as other financial companies were enduring criticism about their incentive pay. Banks such as Citigroup and Bank of America justified paying bonuses to their investment-banking employees on the grounds that these employees normally receive a sizable share of their pay in the form of bonuses, so eliminating or even scaling back bonuses would present a severe hardship to employees who were working hard to unravel the tangle of toxic assets.


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