The American International Group (AIG),which has received more than $170 billion in taxpayer bailout money from the Treasury and Federal Reserve,plans to pay about $165 million in bonuses by Sunday to executives in the same business unit that brought the company to the brink of collapse last year.
Word of the bonuses last week stirred such deep consternation inside the Obama administration that Treasury Secretary Timothy F Geithner told the firm they were unacceptable and demanded they be renegotiated,an official said. But the bonuses will go forward because lawyers said the firm was contractually obligated to pay them.
The payments to AIGs financial products unit are in addition to $121 million in previously scheduled bonuses for the companys senior executives and 6,400 employees across the corporation. Geithner last week pressured AIG to cut the $9.6 million going to the top 50 executives in half and tie the rest to performance.
The payment of so much money at a company at the heart of the financial collapse that sent the broader economy into a tailspin almost certainly will fuel a popular backlash against the governments efforts to prop up Wall Street. AIG,nearly 80 per cent of which is now owned by the government,defended its bonuses,arguing that they were promised last year before the crisis and cannot be legally cancelled. In a letter to Geithner on Saturday,Edward M Liddy,the government-appointed chairman of AIG,said at least some bonuses were needed to keep the most skilled executives.
Of all the financial institutions that have been propped up by taxpayer dollars,none has received more money than AIG and none has infuriated lawmakers more with practices that policy makers have called reckless.
The bonuses will be paid to executives at AIGs financial products division,the unit that wrote trillions of dollars worth of credit-default swaps that protected investors from defaults on bonds backed in many cases by subprime mortgages.
The bonus plan covers 400 employees,and the bonuses range from as little as $1,000 to as much as $6.5 million. Seven executives at the financial products unit were entitled to receive more than $3 million in bonuses.
Liddy wrote that AIG hoped to reduce its retention bonuses for 2009 by 30 per cent. He said the top 25 executives at the financial products division had also agreed to reduce their salary for the rest of 2009 to $1.
Under a deal reached last week,AIG agreed that the top 50 executives would get half of the $9.6 million they were supposed to get by March 15. The second half of their bonuses would be paid out in two installments in July and in September. To get those payments,Treasury officials said,AIG would have to show that it had made progress toward its goal of selling off business units and repaying the government. The financial products unit is now being painstakingly wound down.