AIG, federal czar reach deal on rest of bonus pay to be returned
Friday, March 12, 2010
American International Group has reached an agreement with the Obama administration's compensation czar to pay back the remaining money employees agreed to return last year after an uproar over bonuses at the insurance giant, according to sources with knowledge of the matter.
Employees at AIG Financial Products, the Connecticut-based unit whose faulty derivatives contracts brought AIG to the brink of collapse, agreed during a storm of criticism last March to return $45 million of the more than $165 million they had received in retention bonuses by the end of the year.
Only about $19 million, however, was returned.
Kenneth Feinberg, a Washington lawyer appointed by President Obama to set compensation at a group of firms receiving the largest government bailouts, said repeatedly that the return of the bonus money was non-negotiable and that he would continue to seek resolution of the matter.
AIG had been scheduled this month to pay out another round of retention bonuses, worth nearly $200 million. Government officials and company executives had been eager to avoid another spectacle like the one that occurred after similar payments last year.
In a deal in January, about 97 percent of current employees at Financial Products agreed to a 10 percent reduction in the amount of money they were owed in a second round of retention payments due by March 15. In return, they received their payments early.
Participation was far lower -- about 35 percent -- among former employees eligible for the payments, who were asked to accept a 20 percent reduction.
Together, the concessions added up to about $20 million. Combined with the amount that employees returned last year, that left a shortfall of about $5 million.
A source familiar with the situation said that amount would be deducted from the bonus payments due in coming days to former Financial Products employees who had not agreed to an earlier reduction. The source, who, like others, spoke on condition of anonymity because of the sensitivity of the matters, also said that AIG recently sent letters to former employees, asking them to document whether they had made any outside income since leaving the company. If they had, that amount could be deducted from the retention bonuses.
AIG declined to discuss details of the agreement with Feinberg about the bonuses at Financial Products.
"We are committed to repaying the $45 million," said spokesman Mark Herr. "We're confident that we will reach that goal."
In an interview last month, Feinberg said he sympathized with public anger over the payments at AIG.
"I am as troubled as Main Street is by the contracts," Feinberg said, referring to agreements signed before the financial crisis that promised millions in retention bonuses to employees at Financial Products. But, he added, "there's a limited amount of leverage when you have valid, grandfathered contracts."
Meanwhile, Feinberg and his team are finalizing the size of the 2010 pay packages for the top 25 earners at each of the five companies that remain under his purview, according to sources with knowledge of the matter. Treasury is expected to make his decisions public late next week or the week after.
The pay packages will follow compensation models established last year. But GMAC's chief executive, Michael Carpenter, will not receive any cash as part of his pay, reflecting the fact that the auto-finance company took additional aid from taxpayers in December, the sources said.
Instead, Carpenter, who joined GMAC in November, is to receive all of his 2010 pay in stock-based compensation. The cash component for the pay packages of the rest of the top earners will be $500,000 or less, except for one employee, who will get $600,000, the source said.