American International Group Financial Products (AIGFP) employees who received retention bonuses in excess of $100,000 have been asked to return half of the bonuses, AIG CEO Edward Liddy told lawmakers on Capitol Hill today.
AIG paid the employees up to $165 million in total bonuses on March 15. Those payments triggered criticisms from the White House, Congress and taxpayers because the company has received billions of dollars in rescue funds from the government.
The employees work for the unit, AIGFP, which sold the credit default swap business and other financial products that caused most of the company’s financial problems.
“Some have already stepped forward and offered to give up 100 percent of their payments,” Liddy reported before a House committee, where he acknowledged that recent bonus payments do “not sit well with American taxpayers.”
Liddy said the bonuses were to keep people in jobs for the closing of the giant AIGP unit, which still has considerable business that needs to be unwound.
“The risk was too great that we would lose all the progress we made if we didn’t pay these bonuses,” he said in answer to a question from a committee member.
“Although we have wound down more than $1 trillion in the portfolio of AIG Financial Products – the unit that is at the root of our financial problems – that portfolio remains very large – $1.6 trillion – and it continues to contain substantial risk. The financial downside for taxpayers is potentially very large and very real, and that’s why we’re winding this business down,” Liddy told lawmakers.
He said the AIGFP employees were told that if they stay and satisfactorily wind down their part of the business, they would get a bonus. He said some of the employees completed their jobs and left AIGFP, and were the given their bonus after they had left the company.
The retention bonuses were contracted during prior management more than one year ago, he said. No performance bonuses have been paid to AIGFP employees recently, he said, only retention bonuses.
Liddy acknowledged that taxpayers are upset.
“Americans are asking – why pay these people anything at all? Here is why. I am trying to prevent an uncontrolled collapse of that business. This is the only way to improve AIG’s ability to pay taxpayers back quickly and completely, and the only way to avoid a systemic shock to the economy that U.S. Government help was meant to prevent,” he said.
He said that had he been CEO at the time, he never would have approved the retention contracts that were put in place over a year ago. “It was distasteful to have to make these payments. But we concluded that the risks to the company, and therefore the financial system and the economy, were unacceptably high,” he said.
Liddy balked at revealing the names of individuals receiving bonuses because he said he feared for their safety.
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