CEO defends bonuses

AIG says some have volunteered to return money, but House panel still fumes

March 19, 2009|By Jim Puzzanghera and Walter Hamilton | Jim Puzzanghera and Walter Hamilton,Los Angeles Times

In announcing that he had asked American International Group employees to return at least half of their controversial bonuses, chief executive Edward M. Liddy tried to defuse the immense public outrage over payments to people who helped cause the financial crisis.

Some employees at the insurance giant have volunteered to return their entire bonus, he said yesterday. But Liddy's announcement did not satisfy members of Congress.

"Getting half of the money back is not the answer," Georgia Democratic Rep. David Scott told Liddy during a contentious congressional subcommittee hearing. "The answer is getting all the money back."

Lawmakers continued to fume over the $165 million in retention bonuses to employees at AIG's financial products division, who created the risky credit-default swaps and other financial derivatives that brought AIG to the edge of bankruptcy in September.

House Democrats announced their plans to vote today on legislation to tax the bonuses almost completely out of existence.

Rep. Paul Kanjorski, a Pennsylvania Democrat, warned Liddy that the decision to award the bonuses had produced such a backlash that it could hinder the government's ability to take additional steps to deal with the continuing financial crisis.

Liddy defended his decision to pay the bonuses, saying withholding them would have violated employee contracts, leading to lawsuits, and would have prompted staff members to resign. He said officials at the Federal Reserve knew of the bonuses in November.

He called the payments "distasteful" but noted that the company agreed to them before he took the job in September, when the Federal Reserve made the first installment of bailout money. The government, which owns 80 percent of the company, has made commitments for up to $182 billion in loans and other aid to AIG.

Liddy said he decided the bonuses had to be paid, given the need for employees to continue working to restructure AIG and to unwind its exposure to about $1.6 trillion in derivatives to avoid its collapse.

"I know $165 million is a very large number," Liddy said. "In the context of $1.6 trillion and the money already invested in us, we thought that was a good trade."

Liddy said he knew the public would be upset by the decision but didn't realize how much.

In response to a request from House Financial Services Commitee Chairman and Massachusetts Democrat Barney Frank, Liddy said he would turn over the names of those receiving bonuses. But he said he would do so only if the names were kept confidential, pointing to threats that employees have received since news of the bonuses broke over the weekend.

Frank said he might subpoena the information and he would not commit to keeping the names confidential. At the same time, he said he would take threats against AIG employees into consideration.

Also yesterday, mortgage giant Fannie Mae revealed that it plans to pay retention bonuses of at least $1 million to four key executives as part of a plan to keep hundreds of employees from leaving the government-controlled company.

Rival mortgage finance company Freddie Mac is planning similar awards but has not reported on which executives will benefit.

Fannie Mae disclosed its "broad-based" retention program in a recent regulatory filing with the Securities and Exchange Commission. The company was required to disclose only the amounts for the top-paid executives, who will pocket at least $470,000 in addition to their base salaries.

The bonuses are more than double last year's, which ranged from $200,000 to $260,000. Another round, from $330,000 to $429,000, is planned for next February.

A company spokesman declined to comment further.

The Associated Press contributed to this article.

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