Pay czar asks AIG not to pay promised bonuses
WASHINGTON — The Obama administration’s pay czar has asked American International Group to withhold some of the millions in bonuses promised to its employees.
Kenneth Feinberg, the special master for executive compensation, “has informally advised AIG not to pay the full $198 million” employees expect to receive, according to a report Tuesday from the special inspector general overseeing the $700 billion financial bailout.
Feinberg is locked in negotiations with the seven companies that received the most expensive taxpayer bailouts. AIG’s was by far the largest. The government committed more than $180 billion to wind down the New York-based insurance and financial services conglomerate. Treasury now owns about 80 percent of AIG.
The bonuses will go to employees of AIG’s financial products division. Their bad bets on complex financial derivatives helped sink the company. To secure its bailouts, AIG argued to Treasury that its failure would doom the broader financial system.
News about the bonuses in February sparked public and congressional backlash. At the time, Treasury officials said there was no legal way to break the contracts guaranteeing bonus payments, but Feinberg’s move appears to undermine those claims.
The company has asked employees to return some of the money voluntarily.
The report from special inspector general Neil Barofsky also says Treasury did not fully analyze AIG’s compensation before bailing it out. The government focused instead on compensation for a smaller group of executives.
It took officials from the Federal Reserve Bank of New York months to untangle AIG’s “staggeringly complex, decentralized” compensation structure, the report says. They eventually discovered 620 bonus programs totaling $455 million, and 13 retention plans allocating $1 billion.
The company is talking to Feinberg about matters “including future payments to employees of AIG Financial Products,” spokeswoman Christina Pretto said in a statement. Employees have until the end of the year to return voluntarily some of the bonus pay they received in March, she added.
Barofsky’s report recommends that Treasury work closely with officials from the New York Fed, which is funding parts of the AIG bailout. It also suggests Treasury improve oversight of companies that it owns, including reviewing compensation programs before buying major ownership stakes in companies.
In a written response, Herbert M. Allison Jr., Treasury’s assistant secretary in charge of the government bailout, said the department is implementing the guidelines and “has no present intention” of buying another financial company.
“We welcome your comments and suggestions as Treasury continues to strengthen oversight of financial institutions” receiving government assistance, Allison wrote.
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AP Economics Writer Martin Crutsinger contributed to this report.
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