Feb. 3, 2010 -- The Obama administration's pay czar, Kenneth Feinberg, called the tens of millions of dollars in AIG bonuses being doled out today "outrageous," but said the insurance giant was legally obligated to pay them.
Appearing on "Good Morning America" today Feinberg also responded to a senior Republican congressman who claimed that AIG has "taxpayers over a barrel."
In a statement released Tuesday night Sen. Charles Grassley, the senior Republican on the Senate Finance Committee 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."
Feinberg insisted he had not been "outmaneuvered" by the insurance giant.
"These bonuses are the result of contracts entered into before the TARP law was even implemented. These are old grandfather contracts that have the legal force of law," Feinberg said.
Treasury Secretary Tim Geithner defended Feinberg's work in his opening statement before the House Ways & Means Committee this morning.
"Those contracts were outrageous. They should never have been permitted and Ken Feinberg has done an exceptional job under very tough conditions. I asked him to come and help us work through this. He's a brave, smart, tough man who knew he was not going to make anybody happy. And he did a very good job of negotiating down those payments and trying to make sure that we did not have any of that kind of stuff in place in that firm or across our major firms in the future," Geithner said.
But Republicans such as Rep. Kevin Brady of Texas fought back, dubbing the Obama administration "keystone cops."
"Last year the President was outraged at the $45 million in bonuses," Brady told Geithner at the hearing. "A year later the $100 million in bonuses now, 'Oops,' The administration's handling of AIG resembles the Keystone Cops. And it'd be funny if it wasn't leaving the taxpayers crying about it."
AIG still owes the U.S. government $124 billion from its record-setting $182 billion bailout. Today it will pay approximately $100 million in bonuses to the financial products division, the same unit that brought AIG to the brink of failure in 2008.
But this year's payments were reduced after the employees made concessions to help AIG fulfill oral pledges to the government to return some of last year's bonus money.
"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 its Tuesday evening statememt. "We have decided to begin these reduced payments to these active employees, as well as those nonactive employees who agreed to reductions."
AIG employees agreed to return $45 million of the $165 million they received in retention payments last year. The government has not received the entire $45 million yet, but Feinberg said he would make sure the rest is paid in full.
"We are making some progress. I do not for a minute ignore the outrage out there, which I share. But the fact of the matter is we've got to abide by the law, we've got to work as best we can to get as much of this money back as we can, and frankly, we are doing a very very good job, I think, in getting as much of this money as we can pursuant to the rule of law," Feinberg said.
Grassley to Geithner: Why Is Treasury Allowing Bonuses?
For months, 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 could recoup around $20 million.
"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 can't get back the remaining $5 million in give-back pledges now.
"Certain nonactive employees had volunteered an additional $4.5 million 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 nonactive employees to round out the remaining amount of our give-back target over the next few months."
The AIG bonus issue arose Tuesday at a hearing of the Senate Finance Committee that included Geithner. Grassley, the panel's ranking Republican, expressed frustration that he had been learning the details of 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 to 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.