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Associated Press


NEW YORK -- American International Group Inc. is set to pay out about $100 million in a fresh round of bonuses to employees of its Wilton-based financial products division, the unit whose risky bets helped sink the company leading to a $180 billion government bailout, according to reports published Tuesday.

AIG agreed to cut the retention bonuses by $20 million but will still hand out $100 million, The New York Times reported, citing people with knowledge of the negotiations.

Treasury Secretary Tim Geithner, who called the bonuses an "outrageous failure of policy," saied Congress can recoup the bonuses through a new bank fee in President Barack Obama's proposed budget.

Geithner on Wednesday asked the House Ways and Means Committee to support the new fee as a way of getting the money back. The fee, which would be assessed on certain liabilities of the largest firms in the financial sector, would raise about $90 billion over the next decade.

The Washington Post, also citing people familiar with the situation, said the retention payments are for employees at the division who agreed to accept 10 to 20 percent less than AIG had initially promised them two years ago. In return, they are getting their money more than a month ahead of schedule.

AIG is still due to pay out tens of millions of dollars more in March, mostly to former employees who did not agree to the concessions, the Post reported.

A message was left with an AIG spokesman seeking comment.

The White House pay czar Kenneth Feinberg called the bonuses "outrageous," but said the payments are contractual obligations entered into years ago. He also pointed out that AIG executives have pledged to repay $39 million out of $45 million in previous bonuses to the U.S. Treasury.

The insurance giant was hit hard by Wall Street's meltdown in 2008 and still hasn't repaid all of the $180 billion the government gave to rescue it from financial disaster.

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

When the credit crisis hit in the fall of 2008, the U.S. government rescued AIG from the brink of collapse in exchange for an 80 percent stake in the insurer. AIG's near collapse was not due to its traditional insurance operations, but instead risky derivatives contracts written by the financial products division.

The bonuses also sparked outrage from local lawmakers. State Senator Bob Duff, D-25, co-chairman of the Connecticut General Assembly's Banks Committee, said he was disappointed, but not surprised by the news.

"It's not rocket science. I'm not sure why AIG still doesn't get it," Duff said. "It was clear after our hearing last year the company intended to honor $451 million in retention payments from 2008 to 2010 -- far more than the $232 million that everybody was talking about at the time. The documentation we subpoenaed clearly showed that AIG executives were aware that their ship was starting to sink and that they built in secured, guaranteed bonuses with no tie to performance as their own personal life vest."

Duff added that the money would be better spent hiring unemployed financial specialists.

"Plenty of talented people in the financial services sector are looking for work right now, which makes the argument that these bonuses are necessary to retain personnel a weak one," he said. "It simply defies logic that AIG would move forward with these payments."

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