Obama pay czar vows to press for lower AIG bonuses but cites contract obstacles
Thursday, February 4, 2010
The Obama administration's compensation czar said Wednesday that he will continue pushing for reductions to the hefty bonus payments being handed out by American International Group but acknowledged that he is constrained by guarantees the company made to employees years ago.
"I am as troubled as Main Street is by the contracts," Kenneth R. Feinberg said in an interview, referring to agreements signed before the financial crisis that promised millions in retention bonuses to employees at AIG's troubled Financial Products unit. But, he added, "there's a limited amount of leverage when you have valid, grandfathered contracts."
Outrage surfaced again this week with news that the bailed-out insurance giant would pay $100 million to employees at Financial Products, a year after $168 million in similar payments to the same set of employees sparked a national uproar. The most recent bonuses are going to employees who agreed to accept less money than AIG had promised in return for early payment.
About 97 percent of the unit's current employees agreed to a 10 percent reduction. The tally was far lower -- about 35 percent -- among former employees still eligible for the payments, who were asked to accept a 20 percent discount. Together, the concessions added up to about $20 million.
The compromise came ahead of nearly $200 million in bonus payments AIG was scheduled to make next month. Government officials and AIG executives have been eager to avoid another spectacle like the one that followed spring's bonus payments. In addition, Feinberg has urged the insurer to find a way to scale back the pending bonuses. He also has remained adamant that Financial Products employees make good on assurances to return $45 million of the bonus money. Employees have agreed to hand over about $39 million.
"I've told AIG that is nonnegotiable," Feinberg said Wednesday. "Thirty-nine [million] is a good sign, but I want every dime back. I'm confident we will get the $45 million back."
Feinberg said he will continue to urge AIG chief executive Robert Benmosche to try to renegotiate the remaining contracts. He also noted that as he begins to set 2010 compensation for the highest-paid employees at AIG and other firms under his jurisdiction, he can take into account bonuses that those employees have received, even if the law doesn't permit him to tinker with the "legally enforceable and binding" contracts themselves.
Treasury Secretary Timothy F. Geithner brought up the AIG pay issue during testimony Wednesday on Capitol Hill, describing the bonus agreements as "deeply irresponsible."
"Those contracts were outrageous," Geithner said. "They should never have been permitted."
He praised Feinberg's efforts in negotiating down the payments and urged lawmakers to pass President Obama's recently proposed fee on large financial institutions aimed at recouping the cost of the bailout.
"You'll be able to say, as we do, that the American taxpayer will not pay a penny for what happened at AIG," Geithner said. "And if you work with us on financial reform, then we can put in place the kind of bankruptcy procedure we have for real companies and we have for small banks, that allow us to deal with future AIGs, without having to face the kind of outrageous things you've seen us have to confront in this process."