WASHINGTON Embattled insurer American International Group agreed to revamp its bonus structure on Saturday after Treasury Secretary Timothy Geithner objected to its plans to pay out substantial sums for 2008, Obama administration officials and the company's chairman said.
AIG (AIG.N), which has received three government bailouts totaling $180 billion, will sharply cut remaining salaries for 2009 for top executives of its AIG Financial Products unit and will work with Treasury to realign 2008 bonuses to reflect the company's restructuring and repayment goals, AIG Chairman Edward Liddy said in a letter to Geithner.
AIG Financial Products was the unit that made bad bets on toxic mortgages that led to the company's near collapse.
Liddy said the firm was legally obligated to make already-committed 2008 employee-retention payments, the value of which were set last year before problems arose at the Financial Products unit.
"Some of these payments are coming due on March 15, and, quite frankly, AIG's hands are tied," Liddy said, adding that he found the arrangements "distasteful."
But he said he would work with Geithner to resolve the issue.
An Obama administration official said it was unacceptable for Wall Street firms receiving government assistance to pay million-dollar bonuses, but concluded that the retention payments were legally binding.
The Treasury will continue to negotiate with AIG to bring these payments down and seek to recoup the funds through mechanism outside of these contracts.
(Reporting by Glenn Somerville; Writing by David Lawder; Editing by Philip Barbara)