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An executive at American International Group Inc. defended the insurer’s controversial $165 million in bonuses in a hearing in Hartford, saying the recipients did not create the problems that led to a government bailout and several had resigned following threats.
AIG has stoked populist anger after giving out millions of dollars in bonuses to some executives after receiving a $180 billion government bailout to prevent its collapse.
At the center of the furor is AIG’s Wilton, Connecticut- based Financial Products (FP) unit that sold more derivatives than AIG could back and nearly brought down a company that was once the world’s largest insurer.
“Today’s FP employees did not create the credit default swaps that were at the heart of the company’s liquidity crisis. And yet many of them had years of their compensation and sweat equity literally wiped out by the losses at FP,” said Stephen Blake, head of human resources at the financial products unit.
He was testifying Thursday before a Connecticut legislative committee after state authorities subpoenaed 14 current and former AIG executives in a deepening probe over compensation and bonus practices.
Lawmakers agreed Wednesday to allow Blake to be the sole AIG representative after several of the executives received threats. Connecticut Attorney General Richard Blumenthal is seeking private meetings with others who have been subpoenaed.
“We’ve had people call (executive) homes to threaten and intimidate, protesters outside homes and offices,” Blake said. “We’ve had several valued executives resign over the past few weeks. All of this hurts our efforts to unwind the business and repay the taxpayer as soon as we can.”
Fifteen out of the 20 top senior officers who received bonuses have agreed to return the money in March, he said, while others plan to donate the bonuses to charities.
“One incentive to stay on and help the company, despite the inevitable end to the story, was AIG’s promise back in early 2008, many months before the federal bailout in September, to make retention payments,” Blake said.
“This was well before the company acquired federal financial assistance and was agreed to at a time when the company did not foresee the liquidity crisis that suddenly brought AIG to its knees.”
AIG officials say they are contractually obligated under state law to give the retention bonuses, which are designed to keep valued employees from quitting.
They argue the bonuses could be defined as wages in Connecticut and, if withheld, the company could face double damages under the Connecticut Wage Act.
“When all is said and done, almost $780 million worth of deferred compensation will be gone,” Blake said. “Yet, many of these employees agreed to stay at FP to do the difficult work of helping unwind FP’s nearly $2.7 trillion book of business.
“They’ve done this despite long hours, workdays, weekends in the office and away from their families and with the knowledge that they are working themselves out of a job at the end of the day,” he added.
Blumenthal disputes AIG’s assessment and says the bonuses would not be treated as wages under state law.
AIG has submitted details of the bonuses to Connecticut officials, including Governor Jodi Rell and the Commissioner of Consumer Protection, Jerry Farrell, who is analyzing the funds to determine if AIG violated state law.
(Writing by Jason Szep; Editing by Andre Grenon)