Insurance giant AIG to pay $165 million in bonuses

By MARTIN CRUTSINGER, AP Economics Writer Martin Crutsinger, Ap Economics Writer
Sun Mar 15, 7:55 am ET

WASHINGTON – American International Group is giving its executives tens of millions of dollars in new bonuses even though it received a taxpayer bailout of more than $170 billion dollars.

AIG is paying out the executive bonuses to meet a Sunday deadline, but the troubled insurance giant has agreed to administration requests to restrain future payments.

The Treasury Department determined that the government did not have the legal authority to block the current payments by the company. AIG declared earlier this month that it had suffered a loss of $61.7 billion for the fourth quarter of last year, the largest corporate loss in history.

Treasury Secretary Timothy Geithner has asked that the company scale back future bonus payments where legally possible, an administration official said Saturday.

This official, who spoke on condition of anonymity because of the sensitivity of the issue, said that Geithner had called AIG Chairman Edward Liddy on Wednesday to demand that Liddy renegotiate AIG's current bonus structure.

Geithner termed the current bonus structure unacceptable in view of the billions of dollars of taxpayer support the company is receiving, this official said.

In a letter to Geithner dated Saturday, Liddy informed Treasury that outside lawyers had informed the company that AIG had contractual obligations to make the bonus payments and could face lawsuits if it did not do so.

Liddy said in his letter that "quite frankly, AIG's hands are tied" although he said that in light of the company's current situation he found it "distasteful and difficult" to recommend going forward with the payments.

Liddy said the company had entered into the bonus agreements in early 2008 before AIG got into severe financial straits and was forced to obtain a government bailout last fall.

The large bulk of the payments at issue cover AIG Financial Products, the unit of the company that sold credit default swaps, the risky contracts that caused massive losses for the insurer.

A white paper prepared by the company says that AIG is contractually obligated to pay a total of about $165 million of previously awarded "retention pay" to employees in this unit by Sunday, March 15. The document says that another $55 million in retention pay has already been distributed to about 400 AIG Financial Products employees.

The company says in the paper it will work to reduce the amounts paid for 2009 and believes it can trim those payments by at least 30 percent.

Bonus programs at financial companies have come under harsh scrutiny after the government began loaning them billions of dollars to keep the institutions afloat. AIG is the largest recipient of government support in the current financial crisis.

AIG also pledged to Geithner that it would also restructure $9.6 million in bonuses scheduled to go a group that covers the top 50 executives. Liddy and six other executives have agreed to forgo bonuses.

The group of top executives getting bonuses will receive half of the $9.6 million now, with the average payment around $112,000.

This group will get another 25 percent on July 14 and the final 25 percent on September 15. But these payments will be contingent on the AIG board determining that the company is meeting the goals the government has set for dealing with the company's financial troubles.

The Obama administration has vowed to put in place reforms in the $700 billion financial rescue program in an effort to deal with growing public anger over how the program was operated during the Bush administration.

That anger has focused in part on payouts of millions of dollars in bonuses by financial firms getting taxpayer support.

In his letter, Liddy told Geithner, "We believe there will be considerably greater flexibility to reduce contractual payments in respect of 2009 and AIG intends to use its best efforts to do so."

But he also told Geithner that he felt it could be harmful to the company if the government continued to press for reductions in executive compensation.

"We cannot attract and retain the best and brightest talent to lead and staff the AIG businesses, which are now being operated principally on behalf of the American taxpayers — if employees believe their compensation is subject to continued and arbitrary adjustment by the U.S. Treasury," Liddy said.

Re: Insurance giant AIG to pay $165 million in bonuses

eta: "We cannot attract and retain the best and brightest talent to lead and staff the AIG businesses, which are now being operated principally on behalf of the American taxpayers — if employees believe their compensation is subject to continued and arbitrary adjustment by the U.S. Treasury," Liddy said.

the best and brightest talent that needs $200 BILLION in bailout money

Message edited 3/15/2009 12:39:10 PM.

Re: Insurance giant AIG to pay $165 million in bonuses

It's a subculture.... they work with money every day and somehow came to the conclusion that they're entitled to a big skim off the top, no matter what.

I seriously think that in their microcosm in southern manhattan, they actually cannot even imagine working for an uninflated wage. They think becuase they're educated and schemed they're way into a position of power within their industry that they're actually worth it. They don't even realize how high the bar is in the rest of the working world to make the amounts they do. It's totally lost on them.
(I will say, there are a few other professions with similar attitudes/subcultures)

It's not an easy thing to detox an entire industry from their addiction to money... it's like reforming an alcoholic and making him a manager of a liquor store....

so I'm not shocked that they refuse to disclose where the first bailout $$ went, and they all tried to sneak their perks and bonuses into their 'budget'.
I don't know how the gov't could reform that industry.....

Re: Insurance giant AIG to pay $165 million in bonuses

Fancy words aside, I think it is total bull$hit!!! I hope Obama steps up and puts a stop to it, as he said he would

Re: Insurance giant AIG to pay $165 million in bonuses

I let the first time slide...but this is ridiculous!

But how come it's the teachers' (meager, compared to these guys) salaries that are on the cover of Newsday

Re: Insurance giant AIG to pay $165 million in bonuses

Re: Insurance giant AIG to pay $165 million in bonuses

Maybe they can relate to the "commoners" and get laid off and collect unemployment!

Re: Insurance giant AIG to pay $165 million in bonuses

I heard on the news this morning that these bonuses were promised under existing contracts with the employees, and AIG had to pay them or risk getting sued for breech of contract.

How airtight those contracts are, I don't know. I would be surprised if AIG didn't leave loopholes to worm out of paying them if they decided to do so, but who knows?

I don't like it either though.

Re: Insurance giant AIG to pay $165 million in bonuses

Re: Insurance giant AIG to pay $165 million in bonuses

If it was in the employee contracts, they have to honor them or it is a breach of contract and therefore the employee can sue.

The Employees of that Company are the future of that company as well.

Re: Insurance giant AIG to pay $165 million in bonuses

Re: Insurance giant AIG to pay $165 million in bonuses

Posted by SweetestOfPeas

Posted by Mrs-D-Girl

If it was in the employee contracts, they have to honor them or it is a breach of contract and therefore the employee can sue.

The Employees of that Company are the future of that company as well.

well maybe a company that needs $200 BILLION in taxpayers money deserves to go belly up

contractually obligated my azz! they would be on the unemployment line if it were not for a bailout

Re: Insurance giant AIG to pay $165 million in bonuses

Honestly, I don't understand why these companies continue to get away with this............

Re: Insurance giant AIG to pay $165 million in bonuses

Posted by Mrs-D-Girl

Posted by SweetestOfPeas

Posted by Mrs-D-Girl

If it was in the employee contracts, they have to honor them or it is a breach of contract and therefore the employee can sue.

The Employees of that Company are the future of that company as well.

well maybe a company that needs $200 BILLION in taxpayers money deserves to go belly up

contractually obligated my azz! they would be on the unemployment line if it were not for a bailout

If AIG goes under, we are going to be in trouble and I mean we have not seen anything yet if that happens! Believe me, I am in the Insurance Industry and this is all everyone is talking about, but the alternative would be horrible for this economy.
It should have never got to this point, just like the banking, housing and every other industry.

Re: Insurance giant AIG to pay $165 million in bonuses

My husband works for AIG.

The top execs that got those bonuses were given those bonuses because it was in their contract.

If they weren't given those bonuses, there would be a breach.

BUT...those top execs salaries are now paid...$1 per year! This is to compensate for the loss of $$.

AIG is a HUGE company. Bigger than ANYONE can imagine. They have their hands in almost EVERYTHING.

If they "fail", we would have GLOBAL repercussions. Yes...global. My DH has conference calls with Hong Kong weekly. They are EVERYWHERE in the world.

My DH was NOT given a bonus, so I am not "defending" the bonuses at all.

It's just so hard to hear about the "bailout" all the time.

The fact is, it's a loan or a line-of-credit.

It will be paid back, and AIG has made huge strides in paying it back already.

My DH worked 7 days straight for 2 months (my kids didn't see their father for almost 3 weeks at a time). They were divvying up the company and selling off their less profitable arms.

The fact is, MANY divisions of AIG WERE profitable...just not enough to "bail out" the suffering divisions.

So no...this company is not perfect. Far from it. They have a LONG way to go before they can get out from under.

But the media makes it like they are vultures and sucking money from all the tax payers' pockets. That may be true of some...but definitely...not MOST of AIG.

Re: Insurance giant AIG to pay $165 million in bonuses

Re: Insurance giant AIG to pay $165 million in bonuses

Posted by Blu-ize

Posted by Mrs-D-Girl

Posted by SweetestOfPeas

Posted by Mrs-D-Girl

If it was in the employee contracts, they have to honor them or it is a breach of contract and therefore the employee can sue.

The Employees of that Company are the future of that company as well.

well maybe a company that needs $200 BILLION in taxpayers money deserves to go belly up

contractually obligated my azz! they would be on the unemployment line if it were not for a bailout

If AIG goes under, we are going to be in trouble and I mean we have not seen anything yet if that happens! Believe me, I am in the Insurance Industry and this is all everyone is talking about, but the alternative would be horrible for this economy.
It should have never got to this point, just like the banking, housing and every other industry.

I typed a whole thing and then it disappeared. AIG can't fail. It's tied to too many industries. Also there are plenty of folks on the unemployment line that had their hands in it.

Contracts may need to be honored. Also at the time the tarp money was given, banks couldn't say no including AIG. They had to take the money. Our bank had to take it too. We would like nothing more than to give it back. I'm sure lots of financial companies would like to give it back but there are stipulations attached to the money.

There will be reform of guaranteed bonuses. It's already happening in my firm. Discretionary bonuses have to happen industry wide so retention doesn't become an issue.

Re: Insurance giant AIG to pay $165 million in bonuses

I understand the outrage over these headlines, and think that it definitely sucks that people who nearly bankrupted a company (the financial products division to which many of these bonuses are being paid) will get bonuses... BUT, I think it is a very scary thing that people are calling for our government to rewrite business contracts. Perhaps there is a solution which they can work out with the company to have money diverted from other sources to cover the cost of these bonuses, but the bonuses were promissed in a written contract between two sophisticated parties. The government, in an effort to stem the financial crisis (and IMO in some part to play on people's emotions) are stepping into areas that they have no business in. Rewriting mortgages, contracts, etc. is a pretty slipperly slope that people are ignoring the potential long-term effects of.

Re: Insurance giant AIG to pay $165 million in bonuses

Unfortunatelly in the Corporate World, it has now been really obvious to everyone that only a handful (those on top!!!) gets all the money and the workers gets minimal raises or get laid off.


ETA: But to play devil's advocate here. People want to stop this "outrage". Well, we can have our cake and eat it too. During the election, LOTS of people here were scared about "socialism" and government interaction. Those companies are the epidemy of freedom. Not regulations, no Government. The bad part is that they found a loophole. They KNOW financial giants cannot go out of business. Whoever thinks that companies like Bear Sterns, Chase, AIG can close their doors like any other business, has no concept of the repercusion of such impact at an international level. So they get the bail out but Government has no say in the management of those companies.

Message edited 3/17/2009 11:43:34 AM.

Re: Insurance giant AIG to pay $165 million in bonuses

Posted by SweetestOfPeas

Posted by Blu-ize

Posted by Mrs-D-Girl

Posted by SweetestOfPeas

Posted by Mrs-D-Girl

If it was in the employee contracts, they have to honor them or it is a breach of contract and therefore the employee can sue.

The Employees of that Company are the future of that company as well.

well maybe a company that needs $200 BILLION in taxpayers money deserves to go belly up

contractually obligated my azz! they would be on the unemployment line if it were not for a bailout

If AIG goes under, we are going to be in trouble and I mean we have not seen anything yet if that happens! Believe me, I am in the Insurance Industry and this is all everyone is talking about, but the alternative would be horrible for this economy.
It should have never got to this point, just like the banking, housing and every other industry.

I typed a whole thing and then it disappeared. AIG can't fail. It's tied to too many industries. Also there are plenty of folks on the unemployment line that had their hands in it.

Contracts may need to be honored. Also at the time the tarp money was given, banks couldn't say no including AIG. They had to take the money. Our bank had to take it too. We would like nothing more than to give it back. I'm sure lots of financial companies would like to give it back but there are stipulations attached to the money.

There will be reform of guaranteed bonuses. It's already happening in my firm. Discretionary bonuses have to happen industry wide so retention doesn't become an issue.

that isn't true. AIG was not forced to take any bailout money. they were one of the first ones to receive bailout money - then went back after a failing quarter and asked for even more.

Re: Insurance giant AIG to pay $165 million in bonuses

Re: Insurance giant AIG to pay $165 million in bonuses

I heard an interesting show on NPR about this yesterday. He made a good point, in that these contracts may very well be voided for fraud if it turns out that there is a clause in the contract making it non-voidable for any reason, with anticipation of protecting the contracts from the ramifications from the government bailout.

I agree with the OP that said it is a slippery slope when the federal government starts intervening with private contracts. However, there really is an ethical issue involved if these contracts were developed with a specific intent to circumvent, or protect against, the purpose of the bailout money.

Re: Insurance giant AIG to pay $165 million in bonuses

I'm not in this field. But I would like to know what were in these contracts that allowed these executives to get bonuses even though the company is losing all this money.
Because I want the same arrangement in my next job

Re: Insurance giant AIG to pay $165 million in bonuses

Re: Insurance giant AIG to pay $165 million in bonuses

Message edited 3/17/2009 12:28:48 PM.