AP Source: AIG consults administration on bonuses

NEW YORK — American International Group Inc. is consulting with the federal government about its plans to pay millions of dollars in retention incentives and bonuses, a person familiar with the situation said.

AIG is working with the Obama administration’s compensation czar, Kenneth R. Feinberg, to ensure the government and the insurer are on the same page before it pays out remaining bonuses due to employees tied to 2008 contracts, according to the person, who requested anonymity because of the sensitive nature of the talks.

New York-based AIG faced intense public and Congressional criticism in March when it paid out hundreds of millions of dollars in retention bonuses to employees months after receiving a bailout from the government.

The latest round of bonus payments has brought fresh anger from some on Capitol Hill.

“The reason that company collapsed and needed to be bailed out was because of the recklessness and irresponsibility of their top management” who took bonuses, said Independent Sen. Bernie Sanders of Vermont. “At a time when millions of Americans are losing their jobs and seeing declines in their incomes, I think it is an outrage that anyone on the AIG leadership team is receiving (even) 5 cents in bonuses.”

Some of the bonuses AIG is planning to pay out were promised to employees in 2008, before the government stepped in to ensure AIG would not collapse. Additional retention payments were awarded in an effort to keep executives from leaving the company after the government’s initial bailout.

In September, the government provided AIG with an $85 billion rescue package amid the mushrooming credit crisis. In return, the government took about an 80 percent stake in the New York-based insurance giant. Since then, the government has provided additional rounds of support. AIG’s available loan package now totals $182.5 billion, though it has not tapped all of the funds.

The latest round of bonus payments will include about $235 million for employees at AIG’s financial products unit, according to a Wall Street Journal report. AIG’s near collapse was not due to its traditional insurance operations, but instead risky derivatives contracts written by the financial products division. AIG is in the processing of winding down that unit.

AIG is also scheduled to pay out another portion of a much smaller set of bonuses to 40 high-ranking AIG executives. The 40 executives were awarded about a combined $9 million in bonuses for 2008. The insurer paid out half of the bonuses in March and is supposed to pay out the remainder in two installments, the first of which is scheduled for next week.

AIG is among the companies whose pay practices the government now oversees. But while AIG is discussing the outstanding bonuses with Feinberg, he cannot ultimately veto the upcoming payments.

Feinberg does have the power to reject pay plans he deems excessive at companies that benefited from large infusions from the government’s $700 billion bank bailout fund. However, those powers only begin with pay packages for 2009 and can’t be retroactively applied to 2008 compensation.

Feinberg also now has authority to review compensation for the top 100 salaried employees at those firms.

While not commenting specifically on the AIG bonus discussions, a Treasury Department administration official said Feinberg will help to ensure companies balance the need to retain talent, reward performance and protect taxpayers’ investments.

“That process is just beginning now, and Mr. Feinberg has begun consulting with those firms about their compensation plans,” the official said. “We are not going to provide a running commentary on that process, but it’s clear that Mr. Feinberg has broad authority to make sure that compensation at those firms strikes an appropriate balance.”

Hundreds of financial firms received money as part of the government’s $700 billion program. Many of the largest banks have been repaying those funds quickly, in part, to enable avoiding scrutiny and restrictions on how they pay top executives.

AIG has been selling assets to raise cash in an effort to repay the government loans. It is also planning to spin off three of its major insurance subsidiaries into separate companies to raise capital necessary to pay back the government.

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AP Economics Writer Martin Crutsinger and AP Business Writer Marcy Gordon in Washington contributed to this report.