WASHINGTON, Jan. 2, 2010 -- Bailout recipient AIG is set to hand out around $100 million in bonuses on Wednesday, nearly one year after the insurance giant incited a public furor when it dished out $165 million in controversial retention payments.
The upcoming bonus payments will go to employees at AIG's Financial Products division (FP), the unit that brought the company to the brink of failure with risky deals years ago and led to the government's record $182 billion bailout.
But this year's payments have been reduced after the employees made concessions to help AIG fulfill oral pledges made to the government to return some of last year's bonuses.
"We are greatly appreciative that virtually all -- some 97 percent -- of active FP employees have volunteered to reduce their upcoming 2010 payment to help achieve our giveback target," the company said in a statement released this evening. We have decided to begin these reduced payments to these active employees as well as those non-active employees who agreed to reductions."
In the midst of a massive populist backlash last year, AIG employees last spring agreed to return about $45 million of the $165 million they had received in retention payments.
"This morning I have asked the employees of AIG Financial Products to step up and do the right thing, specifically I've asked those who received retention payments in excess of $100,000 or more to return at least half of those payments," Ed Liddy, the company's CEO at the time, said at a March 18 hearing before Congress. "Some have already stepped forward and offered to give up 100 percent of their payments."
Over the past year the company succeeded in collecting $19 million, but $26 million went uncollected due to complications with tax issues.
For months, Obama administration pay czar Ken Feinberg insisted that AIG fulfill these pledges to recoup portions of the payments and return the remaining $26 million.
Recently a number of employees approached the company and suggested that management take a percentage out of their upcoming bonus payments -- worth $198 million -- in an effort to fulfill last year's pledges. In return, AIG asked employees still with the company to take a 10 percent haircut on the payments and employees no longer at the company to take a 20 percent haircut. When 97 percent of the employees agreed to do so, AIG was able to recoup around $20 million.
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"The reductions from these two groups stand at about $20 million, and we believe this allows us to largely put this matter behind us," AIG said in its statement.
The company said it was unable to get back the remaining $5 million in give-back pledges at the current time.
"Certain non active employees had volunteered an additional $4.5mm in reductions, but for reasons unrelated to the program, we are not able to accept them at this time," the company statement said. "Nonetheless, we will continue to work with the non active employees to round out the remaining amount of our give-back target over the next few months."
The AIG bonus issue arose earlier today at a hearing of the Senate Finance Committee featuring Treasury Secretary Tim Geithner. Sen. Chuck Grassley, the panel's ranking Republican, expressed frustration that he had been learning details about AIG's payment plans this year from leaks in the press rather than directly from the Obama administration.
"Why is Treasury allowing AIG to pay bonuses again this year?" he asked.
"I just want to emphasize that Ken Feinberg, who I appointed to try and make sure we are fixing in compensation structure for this set of institutions, is working very hard on just the concern you raised, and I'm sure he'll be able to provide a little more detail in public and in writing when he's reached those judgments," Geithner said.
Calls and emails to Feinberg and the Treasury Department were not returned Tuesday evening.
After the hearing, Grassley released a statement blasting the Obama administration.
"AIG has taxpayers over a barrel," Grassley said. "The Obama administration has been outmaneuvered. And the closed-door negotiations just add to the skepticism that the taxpayers will ever get the upper hand."