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March 15, 2009
 A.I.G. Planning Huge Bonuses After $170 Billion Bailout
By EDMUND L. ANDREWSandPETER BAKER 
 WASHINGTON — The American International Group, which has received more than $170 billion intaxpayer bailout money from theTreasury and Federal Reserve, plans to pay about $165 million in bonuses by Sunday to executives in the same business unit that brought the company to the brink of collapse last year. Word of the bonuses last week stirred such deep consternation inside the Obama administration thatTreasury Secretary Timothy F. Geithnertold the firm they were unacceptable and demanded they berenegotiated, a senior administration official said. But the bonuses will go forward because lawyers said thefirm was contractually obligated to pay them.The payments to A.I.G.’s financial products unit are in addition to $121 million in previously scheduled bonuses for the company’s senior executives and 6,400 employees across the sprawling corporation. Mr.Geithner last week pressured A.I.G. to cut the $9.6 million going to the top 50 executives in half and tie therest to performance.The payment of so much money at a company at the heart of the financial collapse that sent the broadereconomy into a tailspin almost certainly will fuel a popular backlash against the government’s efforts toprop up Wall Street. Past bonuses already have promptedPresident Obamaand Congress to impose toughrules on corporateexecutive compensationat firms bailed out with taxpayer money. A.I.G., nearly 80 percent of which is now owned by the government, defended its bonuses, arguing that they  were promised last year before the crisis and cannot be legally canceled. In a letter to Mr. Geithner, EdwardM. Liddy, the government-appointed chairman of A.I.G., said at least some bonuses were needed to keepthe most skilled executives.“We cannot attract and retain the best and the brightest talent to lead and staff the A.I.G. businesses — which are now being operated principally on behalf of American taxpayers — if employees believe theircompensation is subject to continued and arbitrary adjustment by the U.S. Treasury,” he wrote Mr.Geithner on Saturday.Still, Mr. Liddy seemed stung by his talk with Mr. Geithner, calling their conversation last Wednesday “adifficult one for me” and noting that he receives no bonus himself. “Needless to say, in the currentcircumstances,” Mr. Liddy wrote, “I do not like these arrangements and find it distasteful and difficult torecommend to you that we must proceed with them.” An A.I.G. spokeswoman said Saturday that the company had no comment beyond the letter. The bonuses
.I.G. Planning Huge Bonuses After $170 Billion Bailout - NYTimes.comhttp://www.nytimes.com/2009/03/15/business/15AIG.html?hp=&pagewa...1 of 33/15/2009 11:35 AM
 
 were first reported by The Washington Post.The senior government official, who was not authorized to speak on the record, said the administration wasoutraged. “It is unacceptable for Wall Street firms receiving government assistance to hand out million-dollar bonuses, while hard-working Americans bear the burden of this economic crisis,” the official said.Of all the financial institutions that have been propped up by taxpayer dollars, none has received moremoney than A.I.G. and none has infuriated lawmakers more with practices that policy makers have calledreckless.The bonuses will be paid to executives at A.I.G.’s financial products division, the unit that wrote trillions of dollars’ worth of credit-default swapsthat protected investors from defaults on bondsbacked in many cases  by subprime mortgages.The bonus plan covers 400 employees, and the bonuses range from as little as $1,000 to as much as $6.5million. Seven executives at the financial products unit were entitled to receive more than $3 million in bonuses.Mr. Liddy, whom Federal Reserve and Treasury officials recruited after A.I.G. faltered last September andreceived its first round of bailout money, said the bonuses and “retention pay” had been agreed to in early 2008 and were for the most part legally required.The company told the Treasury that there were two categories of bonus payments, with the first to be givento senior executives. The administration official said Mr. Geithner had told A.I.G. to revise them to protecttaxpayer dollars and tie future payments to performance.The second group of bonuses covers some 2008 retention payments from contracts entered into beforegovernment involvement in A.I.G. Indeed, in his letter to Mr. Geithner, Mr. Liddy wrote that he had shownthe details of the $450 million bonus pool to outside lawyers and been told that A.I.G. had no choice but tofollow through with the payment schedule.The administration official said the Treasury Department did its own legal analysis and concluded thatthose contracts could not be broken. The official noted that even a provision recently pushed throughCongress by SenatorChristopher J. Dodd, a Connecticut Democrat, had an exemption for such bonusagreements already in place.But the official said the administration will force A.I.G. to eventually repay the cost of the bonuses to thetaxpayers as part of the agreement with the firm, which is being restructured. A.I.G. did cut other bonuses, Mr. Liddy explained, but those were part of the compensation for people whodealt in other parts of the company and had no direct involvement with the derivatives.Mr. Liddy wrote that A.I.G. hoped to reduce its retention bonuses for 2009 by 30 percent. He said the top25 executives at the financial products division had also agreed to reduce their salary for the rest of 2009 to$1.Ever since it was bailed out by the government last fall, A.I.G. has been defending itself against accusations
.I.G. Planning Huge Bonuses After $170 Billion Bailout - NYTimes.comhttp://www.nytimes.com/2009/03/15/business/15AIG.html?hp=&pagewa...2 of 33/15/2009 11:35 AM
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