AIG employees agree to cuts in retention bonuses
Saturday, January 30, 2010
Employees in American International Group's Financial Products division this week overwhelmingly agreed to accept reductions in an upcoming round of retention payments in exchange for receiving the money as early as Friday, people familiar with the matter said.
The bailed-out insurance giant, which has until March 15 to pay nearly $200 million in bonuses to those employees, started pursuing the deal after getting requests from U.S. compensation czar Kenneth R. Feinberg to scale back the pending payments and collect another $26 million in bonuses paid to the same employees last year.
The move is an effort to avoid a repeat of the nationwide uproar that followed the $168 million in retention payments the company made last March to employees at the division, where risky derivative contracts brought the insurance giant to the brink of collapse in 2008.
More than 95 percent of current employees agreed to forgo 10 percent of their upcoming bonus in return for early payment, and several offered to surrender a larger percentage, according to people familiar with the matter. Participation rates have been lower among former employees, some of whom left after portions of the firm were sold or shut down but who were still entitled to the payments.
Those employees have been asked to accept a 20 percent cut. Several people noted that the agreements are "completely voluntary."
"There was tremendous participation," said one current Financial Products employee, who was not authorized to speak on the record and, like others, therefore spoke on the condition of anonymity. "There was a sense of collegial unity to put this behind us."
AIG is hoping to recoup the remainder of $45 million in bonuses that Financial Products employees, at the height of last year's controversy, signaled they would return by the end of 2009. A government audit showed that only about $19 million has been returned, leaving a $26 million shortfall. Feinberg has insisted that the full amount be repaid.
AIG officials declined to comment on the pending deal, though they have said in the past that they "expect FP employees will honor their commitments."
It remained unclear Friday whether the discounts agreed to this week would be sufficient in achieving the company's goal of retrieving $26 million.
People familiar with the deal said AIG executives, who have been consulting Feinberg and other government officials, have expressed confidence they can reach the target and expect to decide next week whether to go forward with the proposed deal.
The retention program at Financial Products was created in early 2008, before the massive bailout of AIG. As the housing bubble was collapsing and the firm's 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 steadily during the past year, winding down the number of derivatives trades on its books and closing offices in Hong Kong and Tokyo. The firm also is down to about half of the more than 400 employees it had before AIG's bailout.