AIG employees to get millions in bonuses

March 15, 2009|By David Cho and Brady Dennis | David Cho and Brady Dennis,The Washington Post

WASHINGTON - Insurance giant American International Group Inc. will award hundreds of millions of dollars in employee bonuses and retention pay despite a confrontation Wednesday between the firm's chief executive and Treasury Secretary Timothy F. Geithner.

But the company agreed to revise some executive payments after what chief executive Edward M. Liddy called a "difficult" conversation.

The bonuses and other payments have been exasperating government officials, who have committed $170 billion to keep the company afloat - far more than has been offered to any other financial firm.

The issue came to a head when Geithner called Liddy and told him the payments were unacceptable and had to be renegotiated, an administration official said.

In a letter to Geithner yesterday, Liddy agreed to restructure some of the payments. But Liddy said he had "grave concerns" about the impact on the company's ability to retain talented staff "if employees believe that their compensation is subject to continued and arbitrary adjustment by the U.S. Treasury."

Lawyers at both the Treasury Department and AIG have concluded that the firm would risk a lawsuit if it scrapped the retention payments at its AIG Financial Products subsidiary, whose troublesome derivative trading nearly sank AIG.

The company promised before the government started bailing out the firm in September that employees would be awarded more than $400 million in retention pay this year and next.

"I do not like these arrangements and find it distasteful and difficult to recommend to you that we must proceed with them," Liddy wrote.

At the same time, the company said in documents provided to the Treasury Department, any steps that encourage specialists at AIG Financial Products to leave could open the U.S. government to further risk because of the hazards still posed by the $1.6 trillion portfolio of complex derivatives these employees are working to dispose.

AIG's top seven executives, including Liddy, agreed in November to forgo their bonuses through this year. The next 43 highest-ranking officers at the company are now to receive half of their bonuses, which total $9.6 million. Another quarter of that would be disbursed July 15 and the rest Sept. 15.

But these last two payments would depend on whether the company makes progress in restructuring its business and paying back taxpayers.

Federal officials plan to recoup some of this bonus and retention pay in restructuring the company, an administration official said.

Officials at the Treasury Department and the Federal Reserve took over AIG in the fall, fearing that one of the world's most successful conglomerates had grown so intertwined with the global economy that the firm's impending failure could have disastrous consequences.

In return for the bailout, the government took an 80 percent ownership stake in the company. Since then, the rescue package has ballooned. But both the Bush and Obama administrations have been reluctant to completely and explicitly nationalize the company, though this could have avoided the current flap over bonus payments, first reported by The Washington Post.

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