Washington: Despite being bailed out with more than $170 billion (Rs8.79 trillion) from the treasury and Federal Reserve, American International Group Inc. (AIG) is preparing to pay about $165 million in bonuses to executives in the same business unit that brought the company to the brink of collapse last year.
Word of the bonuses last week stirred such deep consternation inside the Obama administration that treasury secretary Timothy F. Geithner told the firm they were unacceptable and demanded they be renegotiated, said a senior administration official, who was not authorized to speak on the record. But the bonuses will go forward because lawyers said the firm was contractually obligated to pay them.
The payments to AIG’s financial products unit are in addition to $121 million in previously scheduled bonuses for the company’s senior executives and 6,400 employees across the sprawling corporation. Geithner last week pressured AIG to cut the $9.6 million going to the company’s top 50 executives in half and tie the rest to performance.
Defensive mode: Edward M. Liddy, the government-appointed chief of AIG, said the bonuses were needed to keep the most skilled executives. Jay Mallin / Bloomberg
The payment of so much money at a company at the heart of the financial collapse that sent the broader economy into a tailspin almost certainly will fuel a popular backlash against the government’s efforts to prop up Wall Street. Past bonuses already have prompted President Barack Obama and the Congress to impose tough rules on corporate executive compensation at firms bailed out with taxpayer money.
AIG, nearly 80% of which is now owned by the government, defended its bonuses, arguing that they were promised last year before the crisis and cannot be legally cancelled. In a letter to Geithner, Edward M. Liddy, the government-appointed chairman of AIG, said at least some bonuses were needed to keep the most skilled executives.
“We cannot attract and retain the best and the brightest talent to lead and staff the AIG businesses—which are now being operated principally on behalf of American taxpayers—if employees believe their compensation is subject to continued and arbitrary adjustment by the US treasury,” he wrote to Geithner on Saturday.
Still, Liddy seemed stung by his talk with Geithner, calling their conversation last Wednesday “a difficult one for me” and noting that he receives no bonus himself. “Needless to say, in the current circumstances,” Liddy wrote, “I do not like these arrangements and find it distasteful and difficult to recommend to you that we must proceed with them.”
An AIG spokeswoman said the company had no comment beyond the text of the letter. The bonuses were first reported by The Washington Post.
© 2009/THE NEW YORK TIMES
Mary Williams Walsh contributed to this story.