Could Be Worse: AIG Double Bonus Jeopardy

Meanwhile, New York Attorney General Andrew Cuomo said Monday that he was looking at using New York state law to recoup the bonuses -- something legal experts say will be difficult to do.

Retention in a Time of Uncertainty

Why AIG would provide retention bonuses for employees in the unit blamed for the company's decline -- the company's financial products unit was the one that wrote the credit default swaps that ultimately proved disastrous to AIG -- might be traced back to the early days of the financial crisis.

A source close to AIG told ABC News that AIG believed that the company needed to put retention programs in place for two reasons: When Joe Cassano, chief of the financial products unit, left in early 2008, the company was worried that other employees would follow; and at the time, around $800 million in deferred compensation had been lost, so AIG's employees had not only seen their boss leave, but they'd also lost millions.

Ultimately, the retention program worked: Employees stayed with the company.

Should AIG Employees Stay?

While critics like Rep. Barney Frank, D-Mass., argue that the time has come to fire AIGFP employees, Russell Miller, the managing director of Executive Compensation Advisors, said there may still be reason to retain them.

"The difficulty here is that the same people who got us into this mess, we need them to help us turn it around, and we're doing that with taxpayer dollars," he said.

"We need to develop a plan that recognizes that: 1) this is a legal obligation and 2) these employees are needed to help turn the company around and 3) these employees likely want to continue working at AIG given the current market environment," Miller said.

But former AIG chief executive officer Hank Greenberg argues that retention bonuses should never have been used to entice employees in the first place.

"I know from long experience that you don't retain people by buying them. You don't buy loyalty," said Greenberg, who left the company in 2005.

A company achieves loyalty, he said, when "people believe and share the same values as you do."

With reports from ABC News' Matt Jaffe and Charles Herman.

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