AIG asks employees to accept cuts in retention bonuses
Tuesday, January 26, 2010
American International Group has asked employees at its Financial Products unit to decide by Tuesday whether they will accept reductions to an upcoming round of retention bonuses worth nearly $200 million. In return, employees would receive their portion of the money early and potentially temper a public furor like the one that followed similar payments last year, said several people familiar with the matter.
Under a deal being considered, they said, current employees would agree to a 10 percent discount and would be paid the balance of their retention bonuses by Feb. 5. AIG has asked former employees, some of whom are still entitled to retention payments, to accept a 20 percent discount.
Neither AIG executives nor federal officials want a repeat of the nationwide outrage that ensued last March when the company paid $168 million in retention payments to employees at the division, whose risky derivative contracts brought the insurance giant to the brink of collapse and led to its massive federal bailout.
Another round of bonuses is due March 15, and government and company officials know another spectacle could lie ahead unless they secure a compromise. The latest deal is a result of repeated discussions aimed at defusing that looming controversy, and some employees said they are inclined to sign on.
"I have a decent number of clients who are willing to do it," said Andrew Goodstadt, a New York lawyer who represents numerous Financial Products employees. He said his clients have a legal right to the money under signed contracts, but they are willing to accept less "to buy peace, basically."
One current employee, who was not authorized to speak on the record, said colleagues have mixed feelings about the proposed deal. On the one hand, the employee said, "we've done our job" in unwinding the risky deals on the firm's books. "We're not doing this because we think we're on the wrong side here," the employee said, adding: "Most people would like to put this behind them. We will make sacrifices to be able to just do our job peacefully and not be used as a political pawn in a bigger battle."
Another primary motive -- at least from the government's perspective -- is to use the givebacks to help cover the remainder of $45 million in bonuses that Financial Products employees signaled they would return by the end of last year. A government audit showed that only about $19 million has been returned so far. Kenneth R. Feinberg, the Obama administration's special master for compensation, has insisted that the full amount be repaid.
The retention program at Financial Products was created in early 2008, well before the bailout of AIG. As the housing bubble was collapsing and the firm's now-famous credit-default swaps began to falter, AIG officials instituted the guaranteed payments to keep employees in place during a period of financial instability.
Financial Products has shrunk to about half the employees it had before AIG's bailout. It has closed its Tokyo and Hong Kong offices and plans to close its office in London this year.
AIG on Monday declined to discuss the pending deal.
"We remain committed to meeting our commitments to return a portion of the FP retention payments," said spokesman Mark Herr. "We continue to work with the special master on the appropriate way to do so."