Report: AIG Employees Accept Partial Cut in Bonus Pay
Jan. 29, 2010 – Having experienced the angry backlash of American taxpayers once before, employees at the subsidiary largely responsible for crippling insurer American International Group (AIG) agreed to a partial reduction in controversial retention pay bonuses.
The majority of employees at AIG Financial Products agreed to accept up to 10 percent less in retention payment bonuses if it means collecting the money sooner, Reuters reported yesterday. AIG Financial Products is the subsidiary unit largely responsible for crippling AIG after exposing the insurance giant to massive debt through high-risk securities tied to various mortgage markets. When people began defaulting on their mortgages, AIG’s trading partners demanded compensation through their trading agreements with the insurance giant, which essentially insured banks against defaults on risky mortgage loans.
About 95 percent of employees at AIG Financial Products reportedly agreed to the reduction in bonus payments, and some suggested even deeper cuts, according to Reuters. If implemented, AIG would save about $13 million. Company officials sought a $26 million reduction in bonus payments, particularly in light of an angry backlash by U.S. taxpayers upon learning of the scheduled bonus payments in early 2009.
AIG officials in federal filings last year indicated the insurer would pay more than $1 billion in employee retention payments and bonuses to high-level executives and managers at various units. Company officials have defended the bonuses as necessary to retain key employees with years of institutional knowledge at subsidiary units being sold by the insurer to repay its debt to U.S. taxpayers. The bonus payments help retain key staff and make the units more attractive to potential buyers, according to AIG’s former chief executive, Edward Liddy.
Particularly infuriating to U.S. taxpayers, several federal officials became embroiled in a scandal last year over $165 million in bonus payments AIG paid its employees after U.S. Senator Chris Dodd (D-Connecticut) successfully amended legislation ensuring the retention bonuses would be paid to employees at the same unit responsible for AIG’s demise.
Dodd initially denied any role in the matter until proven otherwise. He then blamed President Barack Obama’s administration, claiming White House officials demanded the bonus payments be protected. Dodd and Obama are among the largest recipients of campaign contributions from AIG executives in recent years.
To help quell the subsequent public outrage, Obama eventually appointed Kenneth Feinberg as the federal “compensation czar” in charge of reviewing executive bonus payments at companies accepting federal assistance.