- The Washington Times - Thursday, October 15, 2009

American International Group Inc. employees have returned less than half of the $45 million in bonuses they promised to repay in a good-will gesture after the company received tens of billions of dollars in taxpayer aid, according to the Treasury Department’s independent watchdog.

A public outcry erupted in March when news broke that AIG paid out at least $165 million in executive bonus pay - after being awarded $180 billion in taxpayer loans and incentives to keep the company from collapsing.

Days later, seeking to ease criticism of the company, new AIG Chief Executive Officer Edward M. Liddy told a packed House committee hearing that he had asked employees to voluntarily give back at least half of their bonuses. Mr. Liddy, appointed to the executive post after news of the company’s problems broke, said he lacked the legal authority to rescind the bonuses altogether.

But an audit of the AIG bonus program released Tuesday by Neil Barofsky, special inspector general for the Troubled Asset Relief Program (TARP), found that, as of August, AIG had received pledges from employees to return only $45 million in bonuses.

And to date, only a little more than $19 million of bonus payments has actually been returned, the report said.

AIG officials told auditors that recouping the full amount pledged has been delayed as the company negotiates with employees to restructure a second round of bonus payments totaling $198 million scheduled to be awarded by March.

The company also is in talks with Kenneth Feinberg, the Obama administration’s “pay czar” for companies receiving bailout money, regarding future payments to employees of the AIG Financial Products (AIGFP) division, where the bulk of the bonuses were handed out.

“It’s described to us as a wait-and-see attitude,” said Mr. Barofsky, testifying before the House Oversight and Government Reform Committee on Wednesday. Employees “want to see what they’re going to be getting after Mr. Feinberg conducts his review of the $198 million next March before they commit or fulfill their commitment to pay back the bonuses.”

Mr. Barofsky added that he was doubtful the Treasury Department would be able to collect the full $45 million of pledged money.

“AIG has noted that it’ll be difficult for them to enforce collecting the money for those that have left the company,” Mr. Barofsky said.

But AIG spokesman Mark Herr noted that employees have until the end of the year to fulfill their commitments.

“We expect [AIGFP] employees will honor their commitments,” Mr. Herr said. ” In the meantime, those employees are making considerable progress in unwinding trades and reducing risk at AIGFP.”

The audit also was highly critical of the Treasury Department, accusing the agency of failing to adequately investigate AIG’s massive employee bonus program before allowing the company to participate in the $700 billion TARP bailout, created last fall to stabilize the nation’s teetering credit markets in the midst of the worst recession since the 1930s.

The audit caused a stir with the committee, with lawmakers from both parties accusing AIG of irresponsible use of taxpayer money while condemning federal regulators for failing to discover the bonuses.

“Americans don’t resent people who make a lot of money - we all want to make money,” said oversight committee Chairman Edolphus Towns, New York Democrat. “But what infuriates people is when bosses at bailed out companies, virtual wards of the state, continue to rake in millions - in effect, our millions.

“It just doesn’t seem right that the people who caused this tragedy should be so richly rewarded,” he said.

Rep. Darrell Issa of California, the committee’s top Republican, accused the government of becoming too involved in the private sector, and said both political parties are to blame.

“Rather than learning from the mistakes of his predecessor, President Obama has entangled the federal bureaucracy across the private sector,” Mr. Issa said. AIG “was a political bankruptcy and not handled through a bankruptcy judge as our law requires.”

The Treasury Department did not become aware of the extent of the bonuses until February - after AIG received billions of dollars in taxpayer aid, the audit says.

“Although broadly aware of the existence of contractually required retention and bonus payments in November 2008, there is little to indicate that Treasury officials took steps to assess the totality of AIG’s compensation.”

The compensation program was so complex that even top-level company officials were unaware - and didn’t approve - of many of the hundreds of bonuses programs available, the report says.

AIG’s compensation package included 620 bonus programs totaling about $455 million for 51,500 employees, 13 employee-retention plans allocating about $1 billion to almost 5,200 staffers, and $311 million in deferred compensation paid to about 5,400 employees. Mr. Liddy argued earlier this year that some of the employees receiving the bonuses were greatly needed to help unwind the company’s massive, complex bad assets.

The audit also says New York Federal Reserve examiners began to realize the magnitude of AIG’s bonus program as early as October 2008. But TARP auditors said they “saw little indication that the knowledge being developed by the [New York Federal Reserve] about AIG’s compensation obligations was being passed along to Treasury in any systematic way.”

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