AIG is said to pay big money on division that lost billions
American International Group Inc., the insurer saved from collapse by government money after losses on credit-default swaps, offered about $450 million in retention pay to employees of the unit that sold the derivatives, according to two people familiar with the situation.
About 400 workers at the financial products unit may get the money in two installments, said the people, who declined to be named because details of the payments were confidential. The business was responsible for about $34 billion in write-downs since 2007 as the market value of swaps AIG sold to banks plunged amid the subprime mortgage market collapse.
The payments bring to more than $1 billion the amount AIG has committed to keep its employees from leaving. The New York-based insurer in September took a federal bailout to avoid bankruptcy and is selling subsidiaries to repay the government. AIG said the retention payment program was disclosed before the government rescue, now valued at $150 billion.
“I was extremely disappointed -- but not surprised -- to learn that AIG will be awarding bonuses to the very division that drove the company into the ground,” said Rep. Elijah Cummings (D-Md.), a member of the House Committee on Oversight and Government Reform. AIG shouldn’t be awarding “millions of unmerited dollars to employees while at the same time begging the U.S. government for financial life support.”
Chief Executive Edward Liddy, 62, has been providing data on employee compensation to Congress, saying retention programs are needed to keep the value of the units from eroding as AIG seeks buyers. The payments have drawn criticism from legislators including Cummings, who has said that the awards are unnecessary while employment markets are weak and has called for hearings into the compensation. The U.S. lost almost 2.6 million jobs in 2008.
The insurer started the retention plan for the financial products unit in the first quarter of 2008, AIG said in regulatory filings, including one in August. The program guarantees a minimum level of pay through 2009 for employees, who had $563 million wiped out from existing compensation plans in the third quarter of 2008, AIG said in a November filing, without saying how much the plan would cost.
AIG said the company cut almost $800 million of deferred compensation to the unit’s employees and that the most senior workers would get less than half their usual pay package.
