Posted on 12 Mar 2010
According to people familiar with the matter, American International Group Inc. (AIG) will recoup $45 million in controversial 2009 retention payments made to AIG employees, in part by reducing retention awards slated for employees who have already left the firm.
AIG employees have agreed to return $40 million, these people said. The company is expected to deduct the remaining $5 million from 2010 retention payments slated to be paid to former AIG employees, one of these people said.
The resolution comes after months of discussion between Kenneth Feinberg, the Treasury Department's special master for compensation, and AIG, which is 80% owned by the U.S. Last March, the government determined it was powerless to stop $168 million in payments to employees of AIG's financial products unit, but vowed to recoup some of the money.
Some recipients indicated they would repay $45 million. But by the end of 2009, AIG had only collected a fraction of that amount and it was unclear whether the remaining sums would ever be returned. Mr. Feinberg told AIG he would cut compensation unless the entire promised amount was returned.
The company's chief executive officer, Robert Benmosche, has told government officials he plans to recoup the remaining $5 million by reducing retention payments for former employees. Some of the 2010 bonuses are slated for employees at the financial-products unit who left the company after parts of the business were wound down or sold.
"We are confident that we will reach the repayment number," said Mark Herr, an AIG spokesman.
Arrangements for the $5 million weren't immediately clear. Andrew Goodstadt, an attorney who represents about a dozen AIG financial products former and current employees, said he was unaware of "any agreement with the employees to have their contractual entitlement to employee retention plan payments reduced by $5 million."
A person familiar with the matter said gathering the $5 million was still a work in progress and the company continues talk with former and a small number of current employees.
Earlier this year, AIG asked employees if they would accept a reduction in the bonuses to get early payouts, and most employees at AIG's financial-products unit agreed. That's how it got to $40 million. Mr. Feinberg has made it clear to AIG that it needs to get all $45 million.
"As I have previously stated, I expect that all $45 million in the oral pledges will be repaid to AIG and the taxpayer. That is non-negotiable," Mr. Feinberg said in an interview.
Mr. Feinberg, who has authority to review and set pay for employees at the five remaining firms still holding large sums of government aid, is expected to unveil his 2010 pay determinations as early as next week. He made similar determinations last year to cover the 2009 compensation for a broader range of companies, including Wall Street banks that have since repaid their government funds.
As part of his determination, Mr. Feinberg is expected to prevent GMAC's chief executive officer, Michael Carpenter, from getting any cash compensation for 2010 and will cap salaries for the top 25 GMAC employees at $500,000, according to people familiar with the matter.
GMAC has received multiple bailouts totaling $16.3 billion from the government, which factored into Mr. Feinberg's decision to not pay Mr. Carpenter a cash salary for 2010. The value of Mr. Carpenter's total compensation package has not been finalized but he will receive his entire 2010 pay in the form of long-term equity awards, such as restricted stock, these people said.
Mr. Carpenter, who joined GMAC last year, received $802,000 for 2009. About $119,726 was in cash with the rest coming in the form of long-term stock, some of which can't be accessed until GMAC repays its government investment.
Last year, two of GMAC's top 25 employees received cash salaries above $500,000.