"Lagom" is the Sweedest word*

Dear Reader,

The last week we have read about the enourmous bonuses that has been paid out to managerse all around the world. The most famous case last week was the payout to executives at AIG, the now state-owned American insurer. Mostly the media coverage highlights executives greed and the poor taxpayer is the one who pays. However what media (and politicians) all around the world fails to acknowledge and highlight is the executives self-interest and low beliefs in their company. Let me explain by using a couple of examples.

In Sweden newspapers last week featured every day a new ‘villain’, or in other words an overpaid executive. These included Christer Elemhagen, CEO AMF Pension, Kerstin Hessius, CEO 3^rd Swedish Pension Fund, and Annika Falkengren, CEO SE-Banken to name but a few. The Swedish press usually have a field day every year when companies publicises their annual reports, since these includes the sizes of executives pay. This has partly to do with the Swedish socialist thinking that everyone is equal and that Swedes are love to read about fat salaries which they themselves would like to receive. 2009 has however brought a third reason to way the Swedish newspapers splash-out on executives pay, which is that these companies has either lost astronomical sums or received state aid.

For instance Christer Elemhagen is the CEO of AMF Pension, a pension fund provider. His pay (inc. his pension payments) has over the last couple of years amounted to circa £10mn. The media writes tonnes of articles of this and argues he should be stripped of the major part of it due to losses which has occurred. The media fails to highlight the major issue though; many of these executives move their pensions from their company to another provider when they accrue losses as to protect their pension. It is surely a logical choice every logical person would do, BUT if you are an executive of a pension provider and you cock-up then you should also stand by your decisions and take the hit for it. Not like now when they cash-out fat bonuses while at the same time John Smith has to pay up in order to protect his pension scheme.

In America there has been a big row over AIG managers receiving big bonuses since the company is now state owned. The question in America has turned into a personal issue for the President who now is promising to do everything he can to block the payouts. I think this is a dangerous and stupid quest to pursue. The American media will most likely continue to support Obama. Most of the American coverage does not point out that the terms for the payouts being made now were set out in contracts made years ago. Hence these contracts should be honoured otherwise confidence will be eroded and the most talented people will walk away and AIG will be stuck with its least talented personnel. It would be disastrous if all that money spent by the taxpayer would be in vain. That scenario is far worse than allowing the total payout budget to increase 1% to honour old contracts. Like last week the most objective coverage I have found on this topic was provided by Bloomberg.

Regards,

Fede

*'Lagom' is a Swedish word which does not have a translation in any other language. It roughly means "not too much, not too little, the golden middle way"